Chapter 7 bankruptcy is one way to overcome crushing debt and regain stability after an unforeseen catastrophe. Before you can enter Chapter 7 bankruptcy proceedings, however, you must prove eligibility. An experienced lawyer can examine your specific circumstances to determine whether you meet the requirements for the Salt Lake City Chapter 7 bankruptcy as determined by the “means test.”

The Means Test for Chapter 7 Bankruptcy

The Chapter 7 bankruptcy median income test compares your income to the median income for a family of your size in your state. If your gross monthly income is less than that of a family of the same size, you can proceed with filing a Chapter 7 bankruptcy without completing the remainder of the means test.

If your monthly income is higher than the median, you can use the second part of the means test to calculate disposable income. Someone with little to no disposable income after paying bills at the end of each month will likely be eligible to file under Chapter 7.

The United States Department of Justice updates the median income figures for every state on April 1st and November 1st. As of November 1, 2020, Utah’s median income figures for bankruptcy cases are:

  • One person with an average monthly income of $5,537 or annual income of $66,445.00
  • Two persons with a monthly income of $6,071 and an annual income of $72,855.00
  • Three persons with a monthly income of $7125 and an annual income of $85,507.00
  • Four persons with a monthly income of $7,952 and an annual income of $95,430.00
  • Add an additional $750 per month or $9,000 annually for every additional person in the household thereafter.

The best way to do this is to get a local lawyer to guide you through the means test and determine your eligibility for Chapter 7 bankruptcy.

Exception to the Means Test

An individual or couple filing Chapter 7 does not need to complete the means test if more than 50% of their debts are business-related. This can often be the case if one or more of the debtors is a personal guarantor on a business debt. The debtor must still show that his current income listed on Schedule I minus his current expenses listed on Schedule J leave very little disposable monthly income.

Three Forms Determine Eligibility for Chapter 7 Bankruptcy

To determine eligibility for Chapter 7, submit at least one of three forms to the Salt Lake City court. First, Form 122A-1 requests current monthly income. If you are filing jointly as a married couple, both you and your spouse’s incomes must be listed. If your spouse’s income is below the state median, you’ll qualify for Chapter 7 and not be required to complete the other two forms.

If your income is above the state median, you can complete the means test calculation using Form 122A-2 to determine allowable expenses. Calculate expenses based on how many people in your household qualify as IRS deductions and whether they are older or younger than 65 years of age. Allowable expenses include but are not limited to housing, food, utilities, and health care.

Some members of the military are exempt from having to take the means test if they fill out the Statement of Exemption from Presumption of Abuse under §707(b)(2), which is Form 122A-1Supp. This one-page form asks about the nature of the debt in question and whether the military person is disabled, a reservist, on active duty, a member of the National Guard, or performing homeland defense activity.

What Happens if a Debtor Does Not Pass the Means Test?

If your income or expenses make you ineligible to file under Chapter 7, the first step is to scrutinize all expenses for accuracy and to ensure all secured payments are included. Some expenses are erratic but can be factored in for 12 months.

Seasonal workers typically wait until their offseason to consider bankruptcy if their lower income is the difference between qualifying or not.

If, after recalculating income and expenses, you still don’t pass the Chapter 7 bankruptcy means test, you should consider consulting a local bankruptcy attorney to discuss the advantages of filing under Chapter 13.

Let a Salt Lake City Attorney Guide You through the Chapter 7 Bankruptcy Means Test

Bankruptcy laws are in place to give people a new start if their debt becomes unmanageable. For Salt Lake City residents considering Chapter 7 bankruptcy, taking the means test is an important first step in the path to regaining control over your finances and your life. Call today to schedule your initial consultation and learn how a qualified legal professional can help.

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