News About The Chapter 7 Means Test: How The Bad Economy Makes It Harder To File For Bankruptcy
Well, folks – thanks to the bad economy, the means test just got a little meaner! Unfortunately, recent census data has been compiled and used to calculate mean family incomes by state. It is no wonder that these values are lower than the previously estimated values – unemployment, negative growth and a crumbling economy have a tendency to do that. However, one sometimes under recognized consequence of this is it’s effect on the Chapter 7 Means Test.
What is Means Testing? I am glad you asked. Thanks to the fine people at nolo.com, “Means Testing” can be described as follows:
The bankruptcy “means test” determines whether your income is low enough for you to file Chapter 7 bankruptcy. It’s a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. High income filers who fail the means test may use Chapter 13 bankruptcy to repay a portion of their debts, but may not use Chapter 7 bankruptcy to wipe out their debts altogether.
If you hire an experienced bankruptcy lawyer, the specifics on how this eligibility is calculated may not be important. But, for the sake of this article, it is important to understand that the first step of the Means Test involves looking at Mean Income. If your current monthly income is less than the median income for a household of your size in your state, you pass. Period. You’re done. You do not need to complete the rest of the means test. You can file for Chapter 7.
So what happens when the economy tanks? People lost their jobs and the median income goes down. This means that, in order to qualify for chapter 7 bankruptcy under this first portion of the test, the allowed mean income is reduced.
For those that like numbers, I have included a few charts below. The first shows old data - the average mean income based on family size that was used for means testing prior to November 1st.
Mean Income: Prior to November 1st
The second chart shows the current mean income data that we currently use, since the 1st of the month. Notice how the numbers have dropped? This may very well be the difference between a Chapter 7 and Chapter13 bankruptcy for those borderline chapter 7 bankruptcy filers.
Mean Income: After November 1st
*#@%#$@#….grumble grumble…..crummy economy…..grumble grumble…..&^#(%@#$
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