what is a means test with an attorney

The Means Test, simply put, consists of subtracting your necessary expenses from your average monthly income to find your disposable monthly income. However, bankruptcy courts only allow specific items to count as necessary expenses. You should confirm with an attorney that you are using amounts with the applicable allowances.

Full Answer

What is included in the means test?

It takes into account your income, expenses and family size to determine whether you have enough disposable income to repay your debts. Although it was designed to restrict the number of debtors who can get their debts forgiven through a Chapter 7 bankruptcy, most people who take the means test pass it easily.

What is the purpose of the means test?

The purpose of the means test is to see that if the debtor is abusing the bankruptcy system by filing Chapter 7 bankruptcy cases even though they could afford to pay at least some of their debts. Therefore, the means test is mainly testing the ability of the debtor to pay the creditor(s).

What is considered income for the means test?

What's Considered Your Current Monthly Income? For the means test purposes, your current monthly income (CMI) is the average monthly income you receive from all sources during the full six-month period preceding your filing date.

What is the means test for Chapter 7 in California?

The full Means Test compares the debtor's income to their expenses to determine whether they should benefit from Chapter 7 relief based on their “disposable income.” Applying the Means Test involves deducting all household expenses from the debtor's gross income, including housing costs, utilities, medical expenses, ...

What benefits are means-tested?

The means-tested benefits are:Income-based Jobseeker's Allowance.Income-related Employment and Support Allowance.Income Support.Pension Credit.Tax Credits (Child Tax Credit and Working Tax Credit)Housing Benefit.Council Tax Support.Social Fund (Sure Start Maternity Grant, Funeral Payment, Cold Weather Payment)More items...

What is the meaning of means-tested?

Key Takeaways. A means test determines if a person or household is eligible to receive some sort of benefit or payment. Means-tested benefits include many government assistance and state and federal welfare programs that measure a family's income against the federal poverty line.

How do you pass a mean test?

After subtracting all the allowed expenses from your “current monthly income,” the balance is your “disposable income.” If you have no disposable income — your allowed expenses exceed your “current monthly income” — then you've passed the means test.Feb 2, 2015

Is means test gross or net?

When determining whether you qualify for Chapter 7 bankruptcy, the means test compares your average gross monthly income for the six-month period before filing to the median income of similar households in your state. ... You'll complete the rest of the means test and subtract allowed expenses from your gross income.

What income is exempt from means test?

Means Test Exemptions The courts typically require your business debt to be more than 50% of the total debt, including such debts at money owed to business vendors and suppliers. If you are a disabled veteran who accumulated most of the debt while on active duty or performing a homeland defense activity.Nov 18, 2021

Which is better Chapter 7 or Chapter 13?

Chapter 7 bankruptcy is faster and cheaper than Chapter 13 bankruptcy, but it's not the best option for everyone. Bankruptcy is one of the fastest and most effective ways to find debt relief. Most consumers who follow this path will file for Chapter 7 bankruptcy or Chapter 13 bankruptcy.

How is Chapter 7 means test calculated?

The means test was designed to limit the use of Chapter 7 bankruptcy to those who can't pay their debts. It does this by deducting specific monthly expenses from your "current monthly income" (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly "disposable income."

How much does Chapter 7 cost in California?

How can I pay for filing for bankruptcy? It costs $299.00 to file Chapter 7 bankruptcy in the state of California, and it costs $274.00 to file Chapter 13 bankruptcy.

Figuring Out the Means Test for Chapter 7

The first step of calculating in tackling the means test is calculating your “Current Monthly Income (also referred to as “CMI”). CMI is capitalized because the meaning is a legal term rather than what it sounds like. CMI is not your actual current income but an average of your income from the six months prior to filing.

Means Test and Chapter 13

You thought we were done? Oh no. The same Means Test used to determine whether you can qualify for a Chapter 7 is also one way to determine how much your monthly Chapter 13 plan payment should be. The forms for each chapter’s Means Test are slightly different, but the principal is the same.

What is the meaning of the bankruptcy means test?

The Bankruptcy Means Test: An Attorney’s Explanation. Very little in bankruptcy causes more confusion and anxiety than the Chapter 7 means test. Many people assume that the means test will automatically force them into a Chapter 13 payment plan or prevent them from filing for bankruptcy at all.

What is the CMI test?

The first step in completing the means test is determining your "Current Monthly Income" or "CMI.". CMI is not the same as your actual current income or what you are making right now. Instead, it is an average of your income over the six months before you file for bankruptcy.

Who is Paul Midzak?

Paul Midzak focuses his practice on debtor defense, dispute resolution, consumer protection law, and Chapter 7 and Chapter 13 bankruptcy. He also advises businesses on a variety of legal matters.

What is the meaning of Chapter 7?

The Chapter 7 means test is a case study in unintended consequences. In theory, it requires people who can afford to pay at least part of their debts to enter into a Chapter 13 payment arrangement, rather than discharging their debts in Chapter 7.

Is confusion understandable?

Although these assumptions are not true in most cases, the confusion is understandable. The means is unnecessarily complicated and not entirely rational. Yet, despite its complexity, a basic understanding of the test can maximize your chances of passing it or avoiding it altogether.

What expenses can you deduct if your income is over the median?

The means test permits you to deduct certain standard expenses such as housing, food, clothing, medical care, transportation, etc. based upon IRS averages for your area.

Can you deduct medical expenses?

In addition to the standard expenses, you can deduct some actual expenses, such as debt payments (primarily mortgage and auto loans), taxes, transportation expenses, healthcare, insurance, and charitable donations. Your income minus these allowable expenses is your "disposable income.".

Eligibility for Chapter 7 Bankruptcy

Given their choice, most people who are preparing to file for bankruptcy would choose Chapter 7 over Chapter 13 for the simple reason that Chapter 7 is faster. It normally only takes a few months to complete a Chapter 7 case, far less than the three or five years required for a Chapter 13.

How the Means Test Works in Florida

The means test is used in cases in which the debtor's current monthly income is higher than the state median, a figure that depends on the size of the household. In Florida, the current median income according to household size is:

Help with Passing the Bankruptcy Means Test

When you contact us at The Law Offices of Justin McMurray, P.A. for a free consultation with a Jacksonville bankruptcy attorney, we can take the time to review your financial situation to determine whether you can meet this requirement.

What is the means test?

The means test is meant to disqualify those who could otherwise repay their loans via a debt consolidator or by filing for Chapter 13 bankruptcy. Read more to learn about the means test requirements, and how an attorney can help you determine whether you qualify.

What is a 122A-2?

This is the form where you deduct allowable expenses to determine whether or not you will qualify for Chapter 7 bankruptcy.

Which is better, Chapter 7 or Chapter 13?

In many cases, Chapter 7 is the preferred method of discharging debts. In other cases, Chapter 13 works better. But since it discharges your debts by liquidating the assets you can’t protect ...

Can I file Chapter 7 if I have unsecured debt?

Chapter 7 can only discharge credit card debt, other personal loans, and loans that are otherwise considered “unsecured” ( not back by real property). If it is determined that you have enough disposable income left over to repay your debts, the court will force you to file Chapter 13.

Can you liquidate debt in Chapter 7?

Your disposable income is then compared to the amount of debt you owe various creditors in unsecured loans. Remember, Chapter 7 cannot liquidate debt on loans backed by collateral. For instance, car loans and mortgages cannot be discharged in Chapter 7.

Median Income

If your monthly income is lower than the state median, you automatically qualify for Chapter 7 bankruptcy. In Ohio, the median income used to determine eligibility for Chapter 7 depends on the number of people living in the household.

Disposable Income for Families Earning Above the Median

If your monthly household income exceeds the state median, qualifying under the means test gets more complicated. It depends on the disposable income mentioned earlier. Just remember, that only certain expenses are allowed into this calculation.

What the Means Test Proves

Depending on how much disposable income is left after paying your allowed monthly expenses, the means tests decides if you have enough money to pay off some of your unsecured debts.