Filing Bankruptcy and the Means Test Eligibility
The “Means Test” was introduced in 2005, and as a result, the rules related to filing for bankruptcy changed drastically. The means test is used to determine whether one qualifies for Chapter 7 or Chapter 13 bankruptcies. Before the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” was introduced, the main reason for an individual to file under Chapter 13 was to preserve the equity linked up with the home, or any other property. It’s possible to save the equity by filing for Chapter 13 in lieu of Chapter 7, and the new rule will ensure many people will opt for Chapter 13 bankruptcy information even if they don’t have any equity, since the means test takes into consideration the debtor’s cash inflow and income levels. The Means Test If one decides to avail the benefits provided by the personal bankruptcy filing statute, the exact filing depends upon the means test. According to the means test, the court takes into account the debtor’s average income of the last 6 months prior to the filing process, and compares the income with the median income for that particular state. If the individual’s income is less as compared to the median annual income stated for the state, it’s possible to consider Chapter 7 as a probable option. The next step involves calculating the income, less all living expenses with the exception of payments incurred by debts stated in the bankruptcy. The result is multiplied by 60, which represents the total amount of income over a 5-year period. If that amount is $10,000 or more, it’s required to file under Chapter 13, and the Chapter 7 option gets automatically ruled out. The exact working of the chapter 7 bankruptcy means test is explained : State the income It’s mandatory for debtors filing for personal bankruptcy under Chapter 7 or Chapter 13 Bankruptcy Rules to provide the trustee a copy of the tax returns, or a transcript stating the tax returns. In accordance to the personal bankruptcy law, the documents need to be submitted seven days prior to the 341 meeting. The main problem in doing this is that bankruptcy records are available to public, and it becomes easy to carry out fraud since the name, address, and SSN are easily accessible.
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