The law imposes what is called a Means Test for individuals filing Bankruptcy. While the intent of the law is to deter, prevent or delay the filing of a bankruptcy, that is where we come in to defeat the test so good people can file a Chapter 7 or at least a low cost Chapter 13.
Everyone has to take the Means Test. For most it is only a simple exercise but for some it presents a challenge. Fortunately experienced and skilled lawyers know and understand the test. The lawyers at Robert J Adams & Associates know how to defeat or at least minimize the effects of the test for those whose income is higher than set forth below.
The first step In the Means Test is taking your total income over the last six months and comparing it to the median income for all households in the USA of a similar size. If your income is above the median, then the Means Test form is supposed to calculate whether you are allowed to file Chapter 7.
The following is the median income for Illinois residents as of November 1, 2016
|# in household||Monthly Income||6 month total||Annual Income|
|Add for each |
The number of persons in the household is generally the number on your tax return. But there can be some differences: children away at school; relatives living in your household including grandchildren: other relatives living with you; significant others and their children. Of course, one must include all the income for the household, but then also the bills for the whole household.
Assuming the full Means Test applies to you, there are slew of deductions that can allow a person to file a Chapter 7 assuming your attorney knows how to use them. To name a few:
- IRS allowances for housing, food, clothing and transportation.
- Federal and state taxes; social security and Medicare deductions.
- Court ordered deductions that will continue such as Child support.
- Child care and deductible tuition and school expenses of a child 18 years and under.
- Mandatory retirement plans, union dues and uniforms.
- Secured debt payments like Mortgage payments and car loans. Also, real estate taxes and homeowners insurance if you have a non-escrowed mortgage.
- Health Care but only out-of-pocket; Health Insurance premiums for you and your dependents. Also, term life insurance, and disability insurance.
- Charitable Contributions such as contributions to your church up to 15%.
- Continued contributions to elderly, chronically ill or disabled family members even if they don't live with you.
- Taxes that can't be discharged including interest on them.
- If only one spouse files a case, the Means Test allows multiple deductions for the non-filing spouse's expenses.
Some other points to consider:
- Spouses who are separated but file jointly: in essence there are 2 Means Tests-one for each spouse.
- The Means Test is limited to individuals whose debts are primarily incurred for personal or household expenses. If the debts are primarily (more than 50%) for business the Means Test is not required.
- Overtime premium and periodic bonuses. Such must be included as income.
For most people the above is a lot of legalese. To a skilled and experienced lawyer it lays the foundation to beat the Means Test for the benefit of our clients. We help clients defeat the Means Test on a regular basis.
While all of the above is true for any type of bankruptcy, the goal of Congress was to tell people they cannot do Chapter 7 if they fail the Means Test. This results in a mandatory Chapter 13 Plan unless your lawyer is able to use all the legal tools available to you to help protect your right to file a Chapter 7.
In Chapter 13 the Means Test form is slightly different and it dictates how big your payments will be. The bad part is that the individuals who exceed the median income have to file a 5 year repayment plan, less if all debts are paid in full, even if at the end the calculated amount to unsecured creditors is zero.
The above is a mere guide and should not be construed as legal advice. When contemplating filing a bankruptcy it is certainly best and prudent to seek the advice and counsel of an experienced lawyer who concentrates in Consumer Bankruptcy law. Skilled lawyers can often beat the Means Test and save clients Thousands of Dollars.
Robert J. Adams & Associates
Serving Consumers and Homeowners for over 35 years.
Robert J Adams & Associates has helped thousands of good people, just like you, save their home. Take advantage of our free and confidential consultation today.