Mistakes to Avoid When Taking the Chapter 7 Bankruptcy Means Test: Part I


If you are thinking about filing for Chapter 7 bankruptcy in Oak Park, Illinois, it is important to learn more about how a consumer qualifies for this type of bankruptcy. In short, anyone who wants to file for personal bankruptcy under Chapter 7 will need to pass what is known as the “means test.” The U.S. Courts explain that the means test is used to “determine whether the chapter 7 filing is presumptively abusive.” To put that another way, the means test is designed to determine whether a debtor has too much income, or too much earning ability, to be eligible for Chapter 7 bankruptcy without it being unfair. Since Chapter 7 is a liquidation bankruptcy, a debtor’s non-exempt property will be liquidated, and the debtor can get a fresh start with a bankruptcy discharge.
Yet for many consumers, taking the means test is complicated, and it is easy to make mistakes without the help of a bankruptcy lawyer. The following are some common mistakes that you should avoid when you are taking the means test for purposes of determining your eligibility for Chapter 7 bankruptcy.
Failing to Provide Accurate Income Documentation
In order to pass the means test, a consumer must be able to show that his or her aggregate current monthly income over five years is at or below $12,850. In some cases, instead of using a specific monthly income amount, the debtor can pass the means test by showing that the aggregate currently monthly income over five years is at or below 25% of the debtor’s nonpriority unsecured debt, as long as that amount is less than $7,700. In order to pass the means test, the debtor must provide income documentation. Failure to provide the documentation, or providing documentation that gives figures different than those used in the means test, will result in the debtor being ineligible for Chapter 7 bankruptcy.
Deducting Expenses That Cannot be Deducted
In taking the means test, a debtor is allowed to deduct certain expenses in order to show that she or he has a monthly income that qualifies for Chapter 7 bankruptcy. However, it is important to avoid making the mistake of deducting certain assets that cannot be deducted. For example, 401(k) accounts and other contributions to retirement accounts are not deductible. In addition, college expenses for your child are not deductible.
Failing to Take Deductions That are Allowed
Just as making incorrect deductions can result in you failing the means test and appearing to be ineligible for Chapter 7 bankruptcy, failing to take deductions that are allowable can also result in you unnecessarily failing the means test. For example, child support payments or alimony payments you make are deductible and will not count toward your aggregate monthly income.
Contact a Consumer Bankruptcy Lawyer in Oak Park
If you need help determining whether you are eligible to file for Chapter 7 bankruptcy, or if you need assistance with a consumer bankruptcy more generally, a dedicated Oak Park bankruptcy attorney at our firm can help. Contact the Emerson Law Firm to learn more about our services.
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