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Bankruptcy Means Test
When your creditors start calling it can be terrifying. They say the whole balance is due and want you to pay it now. They are calling at work or maybe even calling your friends or family members. As bad as that can be, there might be relief around the corner in bankruptcy.
What is the Means Test?As discussed on other pages, there are two types of consumer bankruptcy – Chapter 7 or Chapter 13. Chapter 7 is a complete discharge of your debt, so it is very appealing to most of our clients. The Means Test is what will determine whether you qualify for a Chapter 7. The test is a comparison of your income in the past six months to average levels the Department of Justice regularly publishes. These numbers vary depending on the state you are located in. As of November 1, 2020, the debtor must have an income less than the following for the previous six months to qualify for Chapter 7 relief:
Median Family Income by Family Size Table (as of 11/1/2020)| (Family Size) | 1 | 2 | 3 | 4 |
| Massachusetts | $35,417 | $45,456 | $55,390 | $70,155 |
| New Hampshire | $35,585 | $41,164 | $53,314 | $64,079 |
If the debtor’s six month income is higher than that, the court will then ask what the debtor’s disposable income is. Disposable income is how much money you have left over after certain priority expenses are taken out. These allowable expenses include rent, clothing, medical bills, and cost of groceries. If, after subtracting those amounts, we end up with a negative number, then there is no “presumption of abuse” and the debtor will qualify for a Chapter 7 bankruptcy.
Chapter 13 Relief Is Not BadJust because you do not qualify for a Chapter 7 it does not mean bankruptcy is a bad option. Once you end up in a Chapter 13 plan, your attorney will propose a payment plan to the court. That payment plan will have you pay back a fraction of what you owe over three to five years. The creditor has no say in what you pay, it is up to the court what they think you can pay based on what you make and will make in the near future.
What will that amount be? It depends on your nonexempt assets and what your disposable income is. In a Chapter 13 bankruptcy, the debtor pays back the greater of either (1) their disposable income or (2) their nonexempt property. Either way, this amount will be far more manageable than the high payments your creditors are currently demanding.
Given that your disposable income is so crucial to whether you end up paying something back or what you end up paying back, you should always have an experienced lawyer at your side. You need someone to help you decide what should and should not be listed on your bankruptcy petition.
Experienced Bankruptcy AttorneysAt Marcotte Law Firm, we have attorneys who know the bankruptcy code inside an out. We will do our best to allow you to keep the property you love. We can help you keep your payment plan low enough to make it work for your complicated and unique lifestyle.
The Bankruptcy code is complicated, nuanced, and almost impossible to navigate without a lawyer. One screw up can result in your case being tied up because of a Trustee or Justice Department investigation. Do not weather the storm alone.
Give us a call today for a free consultation, (978) 458 – 1229.
