What is the Means
Test?
When congress changed the bankruptcy laws in 2005, they
added a new requirement: anyone desiring to file bankruptcy
must fill out and file with the court a document called a
"means test." (The tehcnical term for the means test is
Bankruptcy Form 22A for chapter 7 and 22C in chapter
13). The means test requires you to put in all sources
of income you received in the last six months, then multiply
that amount by two to arrive at an "annual income." The
amounts you must include for income on the means test are
usually your wages, child support, retirement income and
regularly received investment income such as rent from
tenants. By law, Social Security income is not included
in the means test.
The purpose of the means test is to determine whether you
earn too much to qualify for a chapter 7. If you do earn
to much, you must file a chapter 13 and pay back at least a
part of your debts.
How Much is Too Much?
You earn too much money if you earn more than the median
amount of income for a family of your size in the state where
you live. As of March 15, 2009, the median income
for a single person in Utah is $48,832. The number goes
up to $58,816 for a family of two; $63,796 for a family
of three, and so on. You can see the median income
figures currently in effect for Utah and all states
here at the U.S. Trustee's website.
What if I Earn Too Much?
If the income you've received in the last six
months--multiplied by two--is over the median income for a
family of your size, then you are ineligible to file chapter 7
bankruptcy and must instead file a chapter 13. However,
chapter 13 is not the end of the world. In fact, I have
a good number of clients who choose to file chapter 13 even if
they are eligible for a 7. Why would anyone do
that? Because in a chapter 13 there is no risk that your
assets might be seized and you do not have to pay off all
of your debts. The new bankruptcy laws adopted in
2005 have dramatically lowered the amount of debt you are
required by law to repay, in many cases just pennies on the
dollar. This allows for a really low bankruptcy payment,
particularly if you are paying only unsecured debts. In
any case, chapter 13 is always much, much lower than a wage
garnishment. If you want a quote on how much your
bankruptcy payment would be in chapter 13 just give me a
call at 801.721.9633. I can give you a pretty good
estimate in just a few minutes.