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Bankruptcy Law Blog

Wednesday, October 9, 2019

A Test You Can’t Study For

Life is full of tests. Most of them are small, informal ones we face on a day to day basis. While others are formal, life-altering events. 

Many people do not realize that the bankruptcy process also includes a test — the means test. If you want to file for bankruptcy under Chapter 7 you must be able to pass this test.

It is a government-designed set of factors that measures your income, expenses, and family size to determine whether you have enough disposable income to repay your debts.

Testing, testing… is this thing on? 

The test has two parts. 

For the first part, your average household income for the past six months is compared to the median Alabama income. The Department of Justice keeps a chart of median incomes on its website that your income will be compared to. 

If your income is below our state’s median income, you automatically pass the test and may file for Chapter 7 bankruptcy. If your average income is above the median, you must continue on to step two of the means test. 

In step two of the means test, you give the court information about your spending over the last six months. Things like rent, groceries, and medical expenses are known as “allowable expenses.” After you subtract your allowable expenses from your income, what is left over is deemed “disposable income” the court assumes you could be using to pay off your debts. 

If you have very little disposable income, you pass the means test and may file under Chapter 7. 

What happens if you fail the means test? 

If you “fail” the means test, it means that policy-makers believe you should attempt to pay off your debts through the Chapter 13 bankruptcy process instead of having them forgiven through the Chapter 7 process. 

This is not always a bad thing. Chapter 13 is often a better fit for people who have an asset like a house or a car that they would prefer to hold on to instead of sell off. Many of our clients are surprised by the assets they can keep if they file under Chapter 13 instead of Chapter 7. 

A little help from a friend

If you are determined to file under Chapter 7, your attorney will help you through the means testing process to ensure that your income and expenses are reported correctly. 

It may be necessary to make adjustments to your income if you have taken or lost a job sometime during the last six months, or had a health issue arise. Your attorney will ensure the court is getting accurate information about your current life circumstances. 

Your attorney will also work with you to classify your expenses as allowable expenses or disposable income. It can be tricky to get this right, and getting it right is important, which is why we always recommend filers work with an experienced bankruptcy attorney. 

If you are looking for a bankruptcy attorney, please contact our office in Mobile to schedule a consultation.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”