What is the Means Test?
Learn if you should file Chapter 7 or Chapter 13 Bankruptcy
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 technical 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 too 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 September 2017, the median income for a single person in Utah is $56,638. The number goes up to $62,903 for a family of two; $71,047 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 trustee's website (you have to click on the "Go" icon next to the drop down list).
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.