Are you trying to decide if Chapter 7 bankruptcy is right for you in either California, Illinois or Ohio? Then it is imperative that you read this article as we will detail an important requirement for determining who gets a discharge. This requirement is called the Chapter 7 bankruptcy means test.
Chapter 7 means test is divided into two different sections. The first section makes use of IRS figures to determine who should get a discharge. The second part, on the other hand, uses your real expenses.
For example, you should consider the means test forms such as the Chapter 7 statement of your current monthly income for the exact language. While the bankruptcy forms may be similar in California, Illinois and Ohio, it can still be helpful to read through them on your own.
What Is A Bankruptcy Means Test?
Bankruptcy is a governmental policy drafted to help the court determine if a debtor can make requisite debt payment in Chapter 7 bankruptcy or not. An easier definition is that the means test is a requirement used to select recipients of a bankruptcy discharge. Means tests tend to change from state to state. Another name for Chapter 7 bankruptcy is a liquidation bankruptcy, and rightly so, as the assets that are not covered by Chapter 7 bankruptcy exemption will be liquidated. The money gathered during liquidation is then paid to the creditors.
Before giving an individual Chapter 7 bankruptcy discharge, such individuals should first meet all the guidelines stipulated by their state of residence. One such guideline that a debtor has to meet is that their income should not pass a specific amount. This amount varies with state and according to the number of people in a household. An individual in a household of 4 members will be given a higher income requirement in comparison to those with 2 members. Also, this requirement changes regularly, so it is best to check regularly.
A great way to get a hint on your household income requirement for getting a discharge is by using a free Chapter 7 means test calculator.
How Income Limits Work For Bankruptcy Qualification
In building this calculator, we ensured that we used the latest Census Bureau Median Family income. This Income figure is given by the Department of Justice and has to be strictly followed in selecting who gets a discharge.
The guideline changes regularly. For example, the latest income guideline was released by the Department of Justice on May 15, 2021. And another income guideline may be released any moment from now. To stay abreast with the latest figure, it’s best to check with your bankruptcy court or lawyer to ensure that a different figure isn’t out yet. Below is a succinct idea of what the content of your bankruptcy form entails.
“Enter your average income for six months prior to filing for a bankruptcy discharge. Ensure you include your income from all sources in the calculation.”
To help you understand better, let’s give a short illustration.
Assuming you’re filing for a Chapter 7 bankruptcy discharge on September 25, then you’re expected to detail your earnings from all sources from March 1 to August 31. In a situation where your income from those six months vary, then make sure that you sum up your total earnings and divide the sum by six. Enter the average value gotten into the space provided for monthly income.
Avoid including your income earnings more than once. For example, if you jointly own a rental property with your spouse, and you’ve entered your income earnings from the property in a column, then all subsequent columns for inputting rental income should have the $0 value.
However, you should have it at the back of your mind that you may not get a bankruptcy discharge even when your income is below your state’s mean income value. Likewise, you may still get bankruptcy discharge even when your average monthly income is above your state’s mean income value. What determines whether you’ll get a discharge is a range of factors.
Let’s talk about qualification in California, Illinois and Ohio.
California
To qualify for a Chapter 7 bankruptcy in California, you would look at the bankruptcy means test in California. For example, as of May 15, 2021, you would look at the following income limits for California.
Number Of People - Annual Income
1 - $62,938
2 - $83,435
3 - $ 92,735
4 - $106,530
You would add $9,000 for each additional household member. To help estimate qualification, you could also take free a Chapter 7 means test calculator California.
Illinois
To qualify for a Chapter 7 bankruptcy in Illinois, you would look at the bankruptcy means test in Illinois For example, as of May 15, 2021, you would look at the following income limits for Illinois.
Number Of People - Annual Income
1 - $58,698
2 - $77,547
3 - $92,711
4 - $108,549
You would add $9,000 for each additional household member. To help estimate qualification, you could also take free a Chapter 7 means test calculator Illinois.
Ohio
To qualify for a Chapter 7 bankruptcy in Ohio, you would look at the bankruptcy means test in California. For example, as of May 15, 2021, you would look at the following income limits for California.
Number Of People - Annual Income
1 - $52,415
2 - $67,059
3 - $79,022
4 - $96,175
You would add $9,000 for each additional household member. To help estimate qualification, you could also take free a Chapter 7 means test calculator Ohio.
Let’s now cover the first two parts of the means test.
Using IRS Provided Figures For The First Part
In a situation where your state’s average income supersedes your income in a month, then it means that you’ve passed the first stage of your bankruptcy test, and you may not be required to take another test. If that’s so, then you may be issued a Chapter 7 bankruptcy discharge.
Albeit, this test is no guarantee that you will be given a debt discharge. You will have to first sign some documents in court before you are issued a bankruptcy discharge. Among the gamut of forms, you are mandated to sign include a Schedule I, Schedule J, and an expense detailing form.
If you notice that you have a significant amount left after detailing your monthly expense, then you will be required to provide more information. As mentioned earlier, Chapter 7 bankruptcies vary from state to state.
Using Your Actual Expenses In The Second Part
For the second part of the means test, you may see these official government forms: Statement of exemption from the presumption of abuse under §707(b)(2) and Chapter 7 means test calculation.
In some instances, a bankruptcy court may allow you to get rid of some expenses during the calculation of your Chapter 7 means test. Among the list of deductible expenses are mortgage loans, health insurance, childcare, and automobile loans.
Assuming you are a high-income earner whose income exceeds your state’s median income. Then you may still be issued a bankruptcy discharge, provided that you have only a small amount left as your disposable income. Here are some expenses that you can deduct during a means test calculation:
● Utility expenses
● Food
● Transportation expenses
● Charitable donation
● Secured debt on home and car
● Childcare expenses
As we detailed earlier, the exact amount that you can deduct while calculating your disposable income depends on your household size. To know the exact figure that is needed, you should refer to the current national standard for more guidance.
Conclusion
As stated above, California, Ohio and Illinois have different parameters to follow when qualifying for a Chapter 7 bankruptcy. More specifically, it’s often due to the income limits that often differ by each state. Finally, while Chapter 7 bankruptcy is often the most affordable debt relief option, you may also consider bankruptcy alternatives such as debt negotiation, Chapter 13 bankruptcy, debt management, and debt payoff planning as there are instances where you could lose assets in a Chapter 7 bankruptcy.
