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Bankruptcy Means Test

Before filing for bankruptcy, debtors must determine their average income over the past six calendar months to determine whether or not they are required to file chapter 7 or chapter 13 bankruptcy. If the debtor’s income is higher than the median income of their state for a family of their size, the debtor is not only required to file a chapter 13 bankruptcy, but must also make their chapter 13 bankruptcy payment for 60 months or until all creditors have been paid 100% of the debt owed.

The means test only applies to debtors who have primarily consumer debt. Some example of consumer debts are mortgages, auto loans and credit cards. Businesses and debtors that have debt that is not primarily consumer debt might avoid the bankruptcy means test entirely.

The following should be consider when debtors attempt to make a declaration of non-consumer debts:

  • Less than 50% of total scheduled debt was incurred for personal, household or family purposes.
  • Purpose of debt is judged at the time the debt was incurred.
  • Home mortgages are typically consumer debt.
  • Most tax debts are not typically consumer debt.

It is possible that certain disabled veterans, Reservist or National Guard Members may be exempted from the means test. Disabled veterans may exempt from the bankruptcy means test if they met the following requirements:

  • Must have at least 30% disability from service or released/discharged due to disability.
  • Debt primarily incurred during period of active duty/homeland defense activity.
  • Only if BOTH conditions apply is debtor exempt from further completing Form 22A of the bankruptcy means test.

Reservist and National Guard Members may be exempt from the bankruptcy means test if they met the following requirements:

  • Must be either a member of a reserve component or National Guard; AND
  • Must have been on active duty or performing a homeland defense activity for at least 90 days.
  • Exclusion applies after the minimum 90 day period of service, and for 540 days after the service ends.
  • Exclusion applies only to cases filed between December 19, 2008 and December 18, 2011, unless extended by Congress.

The bankruptcy median income for Virginia is determined using the Census Bureau and the Internal Revenue Service (IRS) data. Gross income before any deductions is used to compute the average income. Gross income includes pay/shift differentials, other income, whether or not taxable.

Business and property expenses may deducted from gross income in the bankruptcy means test if the expenses are “ordinary and necessary,” i.e., a reasonable operating expense. Depreciation is not included and the negative income is not allowed.

Interest, dividends, and royalties are included in bankruptcy means test income.

Pension and retirement income does not include Social Security payments, but does include all other retirement, including government, 401(k), and IRA.

Any amounts paid by another person or entity, on a regular basis, for the household expenses of the debtor or the debtor’s dependents, including child or spousal support are included in the bankruptcy means test. These payments are regardless of written agreement with the person making the contribution. Income includes payments from roommates, partners, parents, or relatives, regardless of whether living with debtor. Income can also include payments made directly to creditors on behalf of the debtor, for example, rent payments, car payments, or insurance payments.

Unemployment compensation received in the six months prior to filing bankruptcy is also included as income for purposes of the bankruptcy means test.

All other income including net gambling, cash gifts, litigation proceeds, and trust income must be included. Private disability income is included in the calculation but SSA benefits, tax refunds and loan proceeds are not usually included in the bankruptcy means test.

Before filing a bankruptcy case, our bankruptcy lawyers in Virginia Beach will analyze your eligibility for different forms of debt relief available under bankruptcy law and which type of bankruptcy is most likely to be beneficial for you. Our lawyers will guide you through the bankruptcy means test during a free bankruptcy consultation .

Additional Bankruptcy Means Test Resources: