If you are hoping to file Chapter 7 bankruptcy, your bankruptcy attorney will assist you in determining whether or not you qualify using the Chapter 7 means test. If your monthly income is less than or equal to your state’s median income, you may qualify to file. If it is greater, additional information will be necessary to determine eligibility for Chapter 7 discharge.
What is Included in the Chapter 7 Means Test?
The Chapter 7 means test can seem confusing, but it can be broken down into two main sections/forms: the statement of current monthly income and the means test calculation. In the first form, information focuses on marital and filing status, and monthly income in comparison to the state’s median income. The second form focuses on calculating disposable income based on income and expenses.
Why is Household Size So Important?
One of the most important calculations included in the means test is the household size. If the household size is incorrect, it can mean the difference between passing and failing. And since passing and failing in regards to the Chapter 7 means test is the equivalent of qualifying to file Chapter 7 and not qualifying to file Chapter 7, it’s fair to say that this is a vital calculation. The means test compares your average household income during the six months prior to filing bankruptcy with the median income of a same-size household in your state. If your income falls below the median, you pass the means test with no further information required. Since the state median income increases as the household gets bigger, you can have a higher income and still pass the means test if your household is big enough to keep you below the state median.
When income falls above the state median, potential filers must complete the rest of the means test form to determine eligibility.
Calculating Your Household Size for the Chapter 7 Means Test:
Bankruptcy law does not actually define a “household.” Since there is no official definition of household for bankruptcy, courts may hold differing opinions on who can count towards “household size.” Some of the common methods used by courts to determine household size include:
“Heads-on-Beds” Approach – following the Census Bureau’s definition of a household, the heads-on-beds approach includes anyone living in the house. Most courts feel this definition is too broad because it doesn’t consider financial contributions or relationships. Few courts adhere to this standard since it holds the potential to drastically inflate household size.
Income Tax Dependent Approach – Some courts allow debtors to count anyone they claim as dependents on their tax return. This is the most restrictive approach, but as such is the most universally accepted by courts.
Economic Unit Approach – Some courts use the economic unit approach to determine household size. This approach looks at how many people in the household behave as a single economic unit – meaning a unit that is financially supported by the debtor or whose finances are closely intermingled with the debtor’s.
If you are filing personal bankruptcy and you are worried about how to calculate household size, please don’t hesitate to get in touch with our experienced bankruptcy attorneys to discuss your options. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in Chattanooga with two. You are in good hands with Kenneth C. Rannick P.C.