The Bankruptcy Means Test Can Mean The Difference Between Chapter 7 And Chapter 13 Bankruptcy
Of all of the changes that took place when the new bankruptcy law took effect in 2005, this is the one that has caused the most confusion and concern. Some people believe that if they make over a certain amount, they are not eligible to file bankruptcy. This isn’t true. The means test simply determines whether or not you are eligible to file a Chapter 7 bankruptcy to have your debts completely liquidated or will have to pay your creditors some of the money you owe them based on your ability to pay.
The means test begins by looking at your income for the six-month period before you file bankruptcy. If your average income for the six months before you file bankruptcy is greater than the median income for Colorado, you have to move on to the next step of the means test. This next step requires you to deduct certain living expenses from your income. If the result of taking that number (average monthly income minus average monthly living expenses) and multiplying it by 60 is greater than $10,000.00, you will have to file a Chapter 13 bankruptcy. In this scenario, with $10,000.00 remaining after expenses, the bankruptcy court will require you to pay $166.67 per month to your creditors.
However, if your remaining income for a period of five years is less than $10,000.00 and less than 25% of your debt, then you may still be eligible to file Chapter 7 bankruptcy. It is important to mention that the living expenses mentioned above are not what you consider your living expenses, but rather they come from government lists of what are suitable allowed expenses.
As you can see, the means test is one of the more complicated aspects of bankruptcy. A bankruptcy petition preparer may not be able to fully explain the test.
A Colorado Bankruptcy Attorney Can Help You Pass The Means Test
To learn more about the bankruptcy means test and whether or not Chapter 7 bankruptcy or Chapter 13 bankruptcy is your best option, schedule your free, confidential bankruptcy consultation with an experienced Colorado bankruptcy attorney today. Our online scheduling system allows you to schedule bankruptcy consultation at a time that is convenient for you.