Qualifying For The Bankruptcy Means Test

Passing the means test in bankruptcy has been a quandary ever since the code changed back in 2005. People with large amounts of unsecured debt run to chapter 7 bankruptcy as a way out, but the big question is on Depending on their income on the individual filing for bankruptcy, the means test can quickly throw a wet rag on what’s thought as a solution. Congress added the means test to bankruptcy back in 2005 with the attempt of stopping abusive bankruptcies. This was supposed to stop serial filers that ran up their debt and wiped it out. The idea behind it was good, but in some cases it punishes people they can’t afford to chapter 13 bankruptcy and do not qualify for Chapter 7. All is not lost, many times a bankruptcy attorney can come up with a solution by timing the bankruptcy.
When it comes to filing bankruptcy timing is everything. The means test is based on an individual’s income during a six-month look back. What the test does is takes the amount the debtor made in the last six months, divided by six and multiply it by 12. This gives the average income for the year, which is cross referenced by the median income chart that the federal government has created. The median income varies from state to state and goes up and down depending on how many dependents in the household. This is where a bankruptcy attorney can time when to file for bankruptcy. Say a debtor makes all their income in a short period of time for the entire year, a bankruptcy attorney will have the debtor wait until the income dropped as they get further away from the time that the income was earned. This works well for those filing bankruptcy that have professions like real estate. A realtor might only sell two houses a year and get paid at the time of those sales.

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