Take A Walk-Through The Means Test

Posted on: 30 June 2019

When you declare bankruptcy you are essentially admitting that you are unable to pay your bills now and in the immediate future. New bankruptcy rules prevent those with a certain level of income from filing chapter 7 bankruptcy. In an effort to make bankruptcy only appropriate for those that really need it, all filers should be prepared to prove income and to undergo a so-called means test if their income is above a certain level. Read on to learn all about means testing for chapter 7 filers.

Forms and Information Required

The following forms are part of a filer's bankruptcy package. Only the first form needs to be filled out if your income is below the limit. The entire form should be filled out when more information is required. Your bankruptcy lawyer will assist you in filling out your means forms.

The Statement of Your Current Monthly Income Form 122A-1 – This form asks for information about the number of people in your household and how much, if any, those people contribute to your total household income. Each household member means a deduction in your income, which helps your ability to file bankruptcy.

Next, you will need to list all income sources. Many have both earned (from a job) and unearned (from interest, rents, investments, gambling, etc.) income. Only the last six months of income is considered.

The final section of Form 122A-1 is to list your state's median income and compare it to your own income. The information about the median income can be found in the instruction section of the form, from your lawyer or by contacting the county clerk's office in your location. If the figures indicate that you can file for bankruptcy given the information on the form, there is no need to complete the second part of the form. If your income exceeds the limit, proceed to step two of the form, Form 122A-2.

The Chapter 7 Means Test Calculation Form 122A-2 – Even if your income is judged higher than the state's median, you might still be allowed to file once you complete the means testing. If you have enough qualifying deductions, your income could be reduced. Your bankruptcy lawyer will very likely ask you for the information needed to complete both of these forms. Form 122A-2 is particularly complex and is based on IRS allowances for certain deductions. Those with high medical expenses, high housing expenses, and other issues are more likely to 'pass' the means test and move on to file for the debt relief needed.

Speak to a bankruptcy lawyer at a local bankruptcy law firm to learn more about means testing.