What is Means Test?
In the United States, the means testing is used as a method to evaluate individuals so as to assess their eligibility to benefit from the Medicaid. The means test is more commonly used in the U.S as a means of assessing individuals who are running into debts/bankruptcy to know if they possess a sufficiently financial means to pay off a portion of the debts they have accrued.
If in your county your current income is below your median income, then, you qualify for Chapter 7 and do not necessarily have to undergo the means test, but if it is the other way round, you may have to take the test to ascertain your disposable income, which can be used to pay off some of your debts. Because of the tricky nature of the entire process, you can seek professional guidance from your Means Test Attorney Los Angeles, Woodland Hills, Encino, Tarzana, Chatsworth and the entire San Fernando Valley
to determine your income (adjusted).
The Bankruptcy Means Test
The bankruptcy means test is a test that was incorporated into the Bankruptcy Protection Act of 2005, and is a method of determining if a debtor qualifies for bankruptcy under Chapter 7. The reason for incorporating this isn’t far-fetched. The old bankruptcy law usually made it quite easy for bankruptcy filers to comfortably meet up with the necessary criteria since the bankruptcy courts used considerable discretion in determining the eligibility of a debtor to file a bankruptcy claim.
In 2005 however, the Congress enacted the Bankruptcy Protection Act of 2005, which was made to counteract the effects of the easy and lenient standards that had been the order of the day. As a result, the means test was put into place in order to checkmate the abuse of the Chapter 7 bankruptcy claim by debtors. Due to this, most bankruptcy filers must now have to pass the bankruptcy means test in order to be qualified for the Chapter 7 bankruptcy.
The means test comes in after a successful completion of the pre-filing counseling program. The means test is required to determine if a debtor qualifies to file a bankruptcy claim. In the Section 707(b)(2) of the Bankruptcy Protection Act, a provision for the means test to be made is essentially to ascertain if an individual debtor’s filing for Chapter 7 bankruptcy claim can be assumed to be an abuse of the Bankruptcy Code which normally would then require an outright dismissal or conversion of the case to a Chapter 13 bankruptcy claim.
An abuse of the Bankruptcy reform act can be assumed if and where the aggregate monthly income of the debtor over a period of 5 years, minus all expenses that are allowable under the statutes of the Bankruptcy act is above (i) $10,950, or (ii) 25% of the all non-priority unsecured debts held by the debtor, as long as that amount is within the range of $6,575. The only way the debtor can succeed in disproving the assumption of abuse is by a showing off special circumstances that justifies some additional expenses made or adjustments to the current monthly income.
Special Circumstances Allowed By The Means Test
As an expert Means Test Attorney Los Angeles, Woodland Hills, Encino, Tarzana, Chatsworth and the entire San Fernando Valley
, I always make my clients understand the following circumstances that are allowed to stand in the “means test” are defined in the 11 U.S.C. 707(b)(2)(A), (II)-(IV) and they include:
• such living expenses that has been specified under the standards of the Internal Revenue Service
• all actual expenses that were not stipulated by the Internal Revenue Standards which includes considerable disability insurance, health insurance and any health savings expenses,
• expenses made to protect against family violence,
• contributions made in view of catering for non dependent family members,
• expenses undertaken for grade and high school, which could usually get up to $1,500 annually per minor child as far as these expenses are considerate and necessary,
• any additional home energy costs plus all those costs that have been laid out in the IRS guidelines,
• 1/60th of all secured debt that is expected to mature within the next five years after filing for bankruptcy,
• 1/60th of all prioritized debt, and
• Contributions that are being made to tax-exempt charities.
The main idea behind this test is to decipher if you, as a debtor, have enough money to pay back a portion at least of the debt you have incurred. You will most possibly be denied your petition to file a Chapter 7 bankruptcy claim if, you possess an income of $100 or more left after you are done with paying off your living expenses for six months before filing for bankruptcy.
A determination of whether you passed the test or not takes a whole lot more just an income minus expenses statistical calculation. After a careful and well thought out consideration of your real living expenses by the courts, they would also take a good look at the hypothetical expenses of the Internal Revenue Service’s as well. These proposed expenses, may just be possibly lower than what you truly spend
Your petition for Chapter 7 is most likely to be granted if your household income, when combined together, still remains less than the median family income obtainable in your county (there is always a slight variation in this amount, but it is usually typically within the $50,000 range), but as an experienced Means Test Attorney Los Angeles, Woodland Hills, Encino, Tarzana, Chatsworth and the entire San Fernando Valley
, you will still need to pass the means test.
Once you have passed the means test, your petition for Chapter 7 will be approved. In a situation where you fail the means test, your application for Chapter 7 will be rejected or most likely converted to a Chapter 13 bankruptcy claim. If after the means test has been taken, and it has been determined that the debtor makes more than their state’s median income, a completion of the second part of the means test to determine if he or she could still be eligible for the Chapter 7 bankruptcy claim is necessary.
If the debtor’s disposable income is still enough to pay off some portion of his accrued unsecured debt (in a Chapter 13) repayment plan after the deduction of all allowed expenses both actual and standardized expenses, then the debtor does not qualify for Chapter 7.
Contact the Leventhal Law Group, P.C. I specialize in helping individuals and small-to-medium sized businesses file for Chapter 11 Bankruptcy, Chapter 7 Bankruptcy, or Chapter 13 Bankruptcy as the case may be. My office offers free consultations too. Call me today at 818-347-5800