Everything You Need to Know About the Means Test: Chapter 7 Bankruptcy
The law can seem complicated. The knowledgeable attorneys from Bournakis & Mitchell, P.C. explain the Means Test Chapter 7. Contact us today for more advice.
Chapter 7 Bankruptcy and the Means Test
Chapter 7 Bankruptcy offers debt relief for individuals and couples with too much consumer debt. Chapter 7 bankruptcy does not require the repayment of debts, but it does require the liquidation of assets to pay off some or all of the financial obligations.
To avoid abuse of the bankruptcy process by those who can afford to pay their debts, the U.S. Bankruptcy Code has set up a system to determine and distinguish between individuals who qualify for bankruptcy under Chapter 7 and those that do not. This system is called the Means Test.
The means test is a calculation system designed to assess a person’s eligibility for government benefits, including debt relief, under Chapter 7. The test ensures that only low-income earners or those with low disposable income can obtain relief under this Chapter.
If you are in significant debt and intend to file for bankruptcy, it is important that you’re aware of the bankruptcy means test calculation system and all it entails. Read on to learn more about this test and how a Georgia bankruptcy attorney can help you.
How the Means Test Works
The essence of the means test for Chapter 7 bankruptcy is to screen out applicants whose primary debts are not consumer debts or whose income is enough to significantly pay off their creditors. Thus it helps to prevent abuse of the bankruptcy process.
The Chapter 7 means test is taken via a series of bankruptcy forms known as the 122 forms. There are several forms in this category for Chapter 7 bankruptcy, and they each serve different purposes as follows:
Form B 122A-1(Statement of Your Current Monthly Income)
This form is compulsory for all Chapter 7 bankruptcy applicants. It determines your monthly income and compares it with the median income for similar-sized households in your state.
The official median family income is determined for each state by the Census Bureau. The median family income for Georgia as of October 2022 is as follows:
- For an individual- $55,609
- For a family of two- $71,504
- For a family of three -$79,980
- For a family of four – $96,622.
To calculate the median income of larger families, you’ll add an extra $9900 for each additional person after the fourth.
Note that these figures are updated occasionally, so you’ll need to confirm the current figures before filing for bankruptcy.
If your income is below the assessed median, then you qualify for Chapter 7 bankruptcy as a low-income earner, and you would not need to rebut the presumption of abuse of the bankruptcy process.
Form B 122A-1Supp (Supplementary Statement of Exemption From Presumption of Abuse)
This form is a supplement to the previous one and is not always needed.
It is used to determine whether the applicant can be exempted from the presumption of abuse either because their debts are not primarily consumer debts or because they have taken part in certain military or homeland defense services in the past.
You do not need to complete the previous form if you qualify for any of these exemptions. You can proceed to complete this supplementary form and fill out only the verification section of the previous form.
Form B 122A-2 (Means Test Calculation)
This is where the actual calculation of an applicant’s means is done. You only need to complete this form if your household income exceeds the median income in your location. Here your living expenses and other allowable expenses are deducted from your gross income. Some of those allowable expenses include:
- Food costs
- Housing and utility costs
- Health care expenses
- Child support payments
- Income tax
- Child care expenses
If your disposable income is still high after making the allowed deductions, then Chapter 7 may not be suitable for you.
Since you have a significant disposable income, you might be able to take care of your obligations by debt settlement instead of bankruptcy under Chapter 7. You can always consult your attorney to determine the appropriate option for you.
Note that these forms are irrelevant to Chapter 11, 12, and 13 bankruptcy proceedings. So if you intend to file for bankruptcy under these chapters, you might want to consult your bankruptcy attorney to help you identify the appropriate application procedure.
How a Bankruptcy Attorney Can Help You
The bankruptcy process in the US and under Georgia bankruptcy laws is technical and complex. There are several forms to complete, ranging from the bankruptcy petition itself to the means test forms. Any omission or inaction could prove costly and lead to a denial of the petition. Hence it is important to consult an experienced Georgia bankruptcy attorney to get professional help and minimize mistakes in the application process.
If you’re applying for Chapter 7 bankruptcy, you’ll need an attorney to help determine if that’s the ideal course of action. Your attorney can assess your circumstances, and from the information you provide, including details of your average monthly income and actual expenses, they’ll let you know if you qualify. If you don’t, they can offer alternatives that could help you settle your debt.
With their knowledge of bankruptcy laws, your attorney can guide you as you prepare the necessary paperwork, such as the means test, and ensure that they comply with the legal requirements. They can also complete the statutory forms on your behalf with the information you provide.
Your bankruptcy attorney would also represent you in bankruptcy court and can argue your case at each point during the proceedings. Also, if you’re experiencing harassment from your creditors, your attorney can approach the court for an order of protection.
Your bankruptcy attorney can essentially take charge of the entire bankruptcy process on your behalf, which could significantly increase your chances of success.
Get Help With Your Chapter 7 Bankruptcy From Experienced Bankruptcy Attorneys in Georgia
If you have further questions about your Chapter 7 bankruptcy application, means test, or any other bankruptcy-related issue, it would give us great pleasure to help you at the law firm of Bournakis & Mitchell, P.C.
We are committed to helping our clients achieve a debt-free status using the proper legal mechanisms. Contact us today, and let us help you begin your journey to freedom.