Getting out of debt is very difficult. And without having access to the right tools, your dreams of being debt-free may remain to be nothing more than just a dream.
With a quick search on the internet, you’ll see numerous debt relief tools you can use. Among these debt relief tools, the one that’ll definitely stand out the most is the Chapter 7 bankruptcy and this is because it helps to eliminate debt completely.
To guarantee that bankruptcy discharge is only issued to the individuals that need it, the U.S. congress carries out an “income test,” which is sometimes called the means test. The means test bankruptcy has not been part of the process in the beginning, but it was introduced in 2005, which lawyers have quickly adapted to. If you pass the means test, you will likely be issued a bankruptcy discharge.
But how can you pass the means test? We’ll shed more light on this.
What is the Means Test?
The means test is a tool to determine who can file for debt erasure through the Chapter 7 bankruptcy.
The test takes into account your earnings, family size, and expenses to determine if you have enough disposable income to pay back your debt. Although it helps to restrict those who apply for a bankruptcy discharge to only those that need it, a good number of individuals that take this test pass easily.
When calculating the means test, you’ll have to calculate your household income and make a comparison between that and the state’s median average income for a household of the same size. The state’s median average income is calculated by the Census Bureau data.
If your income is below the state’s average income, then you’ll likely get a bankruptcy discharge. However, in the instance where your household income exceeds the median household income for your state, then you’ll have to carry out a different test to detect your disposable income.
Also, an affordable bankruptcy lawyer can help you calculate the means test.
Where to Download a Chapter 7 Means Test Form
Have you made up your mind to file for Chapter 7 bankruptcy but don’t know where to obtain a form to begin the process? You can download a copy of the means test when you visit the website of the United States Courts.
Beyond this information, you’ll also need to provide the IRS data and census bureau data.
Calculating The Current Monthly Income Needed for My Means Test
Knowing your current monthly income is important to calculate your bankruptcy means test. Your current monthly income is the sum of your monthly income in the past six months, divided by six.
Assuming you filed for a bankruptcy discharge in July, then your monthly income will be obtained by summing up your monthly income from the month of January to June, then dividing the figure by 6. For a more accurate calculation of your current monthly income, you can make use of the calculator in the last sentence of this article.
However, you should note that you’re mandated to detail the income of every member in your household, so you might want to find out about that before obtaining a form. When calculating your household income, some information you should include in your calculating includes the following:
- 1099 income
- Annuity payments
- Unemployment compensation
When calculating your current monthly income, you’re supposed to use your gross income (income before any deduction is made). The only exception to this is if you’re filing your rental or business income. Also, you will realize that the Illinois bankruptcy means test income limit will be different than the Texas bankruptcy means test income limit.
Unlike other debt relief calculations, your means test does not require that you calculate income from the Social Security Act (Social Security Retirement and SSDI). However, you need to detail this in your bankruptcy form.
Getting Below the Means Test
As said earlier, mean income that falls below the given mean income for the applicant’s state of residence has a high chance of getting a bankruptcy discharge. Those with income that falls above the state’s median income can still get a discharge on their debt. However, they’ll have to take a disposable income test to qualify. If you want an easy way to calculate your median income, you should use Ascend’s mean test calculator.
Calculating your disposable income is also an easy process. To do this, you’ll have to calculate your allowable monthly expense, then deduct this expense from your current monthly income. What’s remaining after the deduction is the disposable income. Having a disposable income that’s lesser than a certain figure automatically qualifies you for a Chapter 7 bankruptcy discharge. If you do qualify for Chapter 7 bankruptcy, many individuals look at bankruptcy alternatives such as Chapter 13 bankruptcy, debt settlement, or debt management.
What are Deductible Expenses?
Deductible expenses are those expenses you can deduct before you calculate your means test. Some of those expenses include the following:
- Taxes on income
- Premium paid for life insurance
- Charitable giving
- Child support
- Compulsory expenses on your child
- Mandatory deductions
You may also be allowed to deduct some daily expenses. However, when doing this, you’ll be mandated to provide evidence of such expenses. The expenses you’ll be allowed to deduct include:
However, the amounts you can claim on the expenses above have certain limits as stipulated by law, and it would also depend on the number of people in your household. You should first check the allowable claim you can make for each category before filing your bankruptcy forms.
Using Means Test to Estimate Whether You Qualify For A Discharge or Not
There are a lot of mean test calculators on the internet. But only a few can help you estimate whether you qualify for a bankruptcy discharge. Fortunately, a chapter 7 means test calculator would.