Though you may feel ready to file for Chapter 7 bankruptcy, you must confirm that you qualify in the first place. In other words, you must take and pass the bankruptcy means test. Follow along to find out the purpose of the bankruptcy means test and how a proficient Louisville, Kentucky Chapter 7 bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you make these calculations.
What is the purpose of the bankruptcy means test?
Essentially, the bankruptcy means test compares the income you earned in the past six months to the debt you owe your creditors. This calculation determines whether you have enough money to gradually pay down your debts, or if Chapter 7 bankruptcy is required to rapidly eliminate your unsecured debts. With this, your income may be compared to that of the average family of the same size in the same county where you live. So, the average incomes for families residing in Jefferson County, Kentucky are as follows:
- For a household size of one: $51,824 annually.
- For a household size of two: $61,945 annually.
- For a household size of three: $70,091 annually.
- For a household size of four: $87,902 annually.
- For a household size of five or more: $97,802 annually, then an added $9,900 for each additional household member.
So if you fall below the average income for your respective category, then you may proceed forward with a Chapter 7 bankruptcy petition.
What is considered income and allowable deductions in this means test?
It is worth mentioning that the bankruptcy means test is not solely based on your salaried income. Rather, it may take into account any other streams of income you may have. Unfortunately, this may set you just above the Chapter 7 annual income limit in the state of Kentucky. Examples of recognized types of income are as follows:
- The pay you receive as an independent contractor (i.e., 1099 income).
- The pay you receive from an alimony and/or child support order.
- The pay you receive from dividends, interest, or royalties.
- The pay you receive from a pension or retirement account.
- The pay you receive from workers’ compensation benefits.
At the same time, the bankruptcy means test may deduct the actual expenses you accrue. This may place you right below the annual income limit once more. That said, allowable deductible expenses may include the following:
- Your income taxes.
- Your mandatory employment deductions (i.e., union dues, retirement plans, etc).
- Your health insurance and term life insurance premiums.
- Your child care expenses.
- Your secured debt payments for your home and/or car.
You must accurately compute these allowable incomes and deductions so that you do not accidentally miss out on your chance to file for Chapter 7 bankruptcy. That is, you do not want to unnecessarily opt for Chapter 13 bankruptcy, or be forced to turn to alternative resolutions such as debt settlement programs or debt management plans.
This is why, when filing your bankruptcy petition, please consider contacting a talented Louisville, Kentucky consumer bankruptcy lawyer. Our team at Schwartz Bankruptcy Law Center is ready and willing to assist you.