Changes Relevant to the Bankruptcy Means Test

If you want to file for Chapter 7 bankruptcy in Illinois, you need to meet the bankruptcy means test. What is the means test? In short, it’s a test that determines whether your income is below a certain amount that will allow you to file for Chapter 7 bankruptcy. This test keeps higher earners from filing for this form of bankruptcy that permits discharging most debts. If you don’t meet the means test—if your income is too high—then you’ll need to think about filing for Chapter 13 bankruptcy instead. As of November 1, 2014, the required income to meet the means test has changed in certain states, including in Illinois.
Bankruptcy law can be very complicated, and it’s difficult to know whether you’ll be eligible to file for Chapter 7 bankruptcy without consulting an experienced Oak Park bankruptcy lawyer. Contact the Emerson Law Firm to learn more about whether bankruptcy is the right option for you, and whether you should be filing for Chapter 7 or Chapter 13 bankruptcy.
What is the Formula for the Means Test?
The means test exists so that Chapter 7 bankruptcy is reserved only for those debtors who actually cannot pay back their debts. You don’t need to be completely broke in order to qualify for Chapter 7, especially if you have high monthly bills, such as a mortgage payment and auto loan payments.
Here’s how the formula works: you deduct your monthly expenses (your mortgage or rent, your car payment, tax payments, and other bills) from your current monthly income. The remaining amount will give you your disposable income. Your disposable income will play a key role in determining whether you can file for Chapter 7 bankruptcy.
What kinds of expenses can you deduct when you’re trying to pass the means test? The following are some of the commonly permitted expenses that can be deducted include:
·      Taxes on your income and other tax obligations
·      Retirement plan deductions
·      Union dues
·      Health insurance payments
·      Disability insurance expenses
·      Life insurance expenses
·      Mortgage payments
·      Car loan payments
·      Alimony
·      Child support
·      Child care expenses, including daycare and preschool costs as well as babysitting expenses
·      Charitable contributions
·      Care expenses for an elderly or disabled member of your family
New Numbers for the Means Test
A recent release from the U.S. Department of Justice showed new numbers for median family income data. These numbers are important because you’ll need them when you’re completing your bankruptcy forms for the means test and calculating your disposable income. For bankruptcy filers in Illinois on or after November 1, 2014, the median family incomes look like this:
·      1 earner: $47,469
·      2 people: $61,443
·      3 people: $72,342
·      4 people: $83,546
For each additional family member after 4, the DOJ instructs bankruptcy filers to add $8,100 to the total.
A Chicago bankruptcy attorney can take a close look at your situation and can discuss other possible expenses that may help you to pass the means test. In some cases, a debtor doesn’t have to pass the means test. If your current monthly income is less than the average in Illinois, you likely won’t even have to take the means test and will be eligible for Chapter 7. And just because you’re eligible to file for Chapter 7 bankruptcy, it’s still extremely important to talk with a bankruptcy attorney. Contact the Emerson Law Firm today to learn more about how we assist clients throughout the Chicago area.
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