Median Income Test
- The first step in qualifying for a Chapter 7 bankruptcy involves comparing your income to the median income in your state for a household of your size. For example, if you are married without children or dependents, you must compare your annual income to the median annual income for a two-person household in your state. Your annual income is computed on federal bankruptcy Form 22A, the Statement of Current Monthly Income and Means-Test Calculation. If you fall under the applicable median income figure, you qualify to file Chapter 7 bankruptcy. Otherwise, you must continue with the rest of Form 22A, known as the "means test."
- The means test offers you a second chance to qualify for a Chapter 7 bankruptcy by allowing you to back out certain expenses from your income. The IRS provides allowable standards of expenses based on census data for where you live. Expense categories include food, clothing, housing and utilities, transportation, taxes, life insurance, health care and childcare. If your 60-month disposable income based on the calculations amounts to more than $11,725, you cannot file Chapter 7. If your 60-month disposable income is less than 25 percent of your non-priority unsecured debt, you can file Chapter 7 if your income falls between $7,025 and $11,725. You also qualify for Chapter 7 if your income figure is below $7,025.
Disposable Monthly Income
- The role of the U.S. Trustee in a bankruptcy proceeding is to prevent debtors from abusing the system. Even if the means test indicates that your income should allow you to file a Chapter 7, the U.S. Trustee can still file a motion to dismiss your petition or convert it to a Chapter 13 if he sees your petition as an abuse of the system. This objection can arise if on your bankruptcy income and expense Schedules I and J you show what the trustee deems to be an excess of monthly income.
Chapter 13 Bankruptcy
- The end result of failure of the various income tests implemented by BAPCPA is either dismissal of your bankruptcy case or the voluntary election of a Chapter 13 bankruptcy. If you are under the median income for a household of your size in your state, you can complete a Chapter 13 repayment plan in three years, but if you are over the median, you must make payments for a full five years.