Bankruptcy Means Test
The Bankruptcy Means Test, enacted in 2005 is part of comprehensive bankruptcy reform lobbied for mainly by the credit card industry. One of the main objectives was to force more individuals to file Chapter 13, requiring monthly payments instead of Chapter 7. This does not mean individuals can no longer file Chapter 7. In fact, many people still qualify for relief under the no payment Chapter 7 option.
Aside from the business debt exception, everyone must fill out and pass the means test to file Chapter 7 bankruptcy, absent “special circumstances.” So what exactly is the Means Test and is the North Carolina Means Test different in Charlotte versus Monroe, NC? Well- the means test looks at an individual’s last 6 months of income and compares that to national and local averages to determine if an individual has the ability to pay money back in a Chapter 13, or if they are entitled to file Chapter 7 bankruptcy. The means test is actually a multi-part test that is constantly changing based on adjustments of national income numbers and expenses, in addition to interpretation of the law by the Court. Do not assume that because you make more than the NC median income for a household of your size that you do not pass the means test.
It is very important to have an attorney review your individual situation, rather than rely on a means test calculator. Form 22A of the Bankruptcy Means Test is very rigid and many individuals may not pass now, but may pass next month. This is especially true if you receive sporadic overtime, annual bonuses, or receive 2 paystubs some months and 3 paystubs in other months. Many overlooked deductions that help individuals qualify include: health insurance premiums, monthly term life insurance, regular contributions to charity and elderly parents, daycare expenses, payroll taxes, secured debt payments, and others.
For those who ultimately do not pass the means test, there are options such as Chapter 13 and debt negotiation. At Witt Law Firm, P.A. we are not going to look down on your current financial predicament or try and talk you into filing bankruptcy. Out goal is to explain all the options to clients so they can make an informed decision on their financial future.