Have Your Situation Reviewed by a Kansas City Bankruptcy Attorney
Chapter 7 is a type of bankruptcy that allows you to discharge all or most of your unsecured debts while protecting your property from creditors. Not everyone is entitled to file for Chapter 7 bankruptcy, however. You must pass what is known as the Chapter 7 means test. The means test determines that your income levels are low enough to justify bankruptcy and looks at the amount of disposable income to pay unsecured debts. If you are unsure about any of the following criteria, speak with a bankruptcy lawyer near you to discover the best solution to your financial obstacles.
Steps to the Chapter 7 Means Test
There are two steps to the means test:
- Are you above or below your state’s median yearly income level for your type of household?
In 2014, the median incomes for Missouri households were as follows:
- One earner: $40,994
- Two people: $51,421
- Three people: $57,468
- Four people: $72,230
For Kansas residents, the median incomes for 2014 were as follows:
- One earner: $44,434
- Two people: $58,344
- Three people: $66,352
- Four people: $73,514
If your household contains more than four people, add an additional $8,100 for each person to that last figure to determine the median yearly income for a family of your size. Keep in mind that the phrase “people” in this instance refers to someone who is financially dependent on you: a roommate paying their share of the rent, for example, should not be included in this list. Consult an attorney it you are unsure how this calculation applies to your home.
If your household’s yearly income is below the state’s median, you automatically pass the means test and are able to qualify to file for Chapter 7 bankruptcy. However, if your household is above the median, proceed to step two.
- Does your disposable income meet the threshold?
This portion of the means test is considerably more complicated. Essentially, you must prove that you do not have enough income to cover your basic living expenses and pay down some of your unsecured debt. This portion of the test examines your income, rent, transportation expenses, basic living costs, debts, child support and other forms of income and expenses. You will record these expenses on Official Form 22A when you file for bankruptcy.
You can use an online means test calculator to find out if you qualify, but it is always better to discuss your financial situation with a qualified bankruptcy attorney. An attorney understands the nuances to the means test, and he or she can make sure you are listing all the expenses that affect your household throughout the year. The form asks for monthly expenses, which can be misleading in terms of reporting one-time annual costs and high expenses for children.
Are There Any Exceptions to the Means Test?
You do not need to pass the means test if any of these three situations apply to you:
- A majority of your debts are business-related
- You are a disabled veteran with at least a 30 percent disability rating and you incurred most of your debts while serving
- You are a member of the National Guard or military reserve and you are within 540 days of your last active duty and your last period of service lasted at least 90 days
Consult with a Chapter 7 attorney to find out if you pass the means test. Even if you don’t believe you pass, an attorney might show you differently or discuss how Chapter 13 would be a viable alternative. The Sader Law Firm offers free telephone consultations to those wondering if bankruptcy is the right solution for their families.