Divorce & Bankruptcy: Determining Eligibility for Chapter 7 Bankruptcy

The means test became part of bankruptcy law in 2005 to help individuals determine their eligibility for bankruptcy, as well as determine which kind of bankruptcy is the best for the situation. Completing the requirements may seem daunting because there are a number of technicalities involved, which is why it is not recommended that you go about the process without the assistance of an attorney. The test has several steps, some of which may not be necessary depending on your income. Eligibility gets even more complicated when a divorce is involved, which is why it’s always a good idea to work with an attorney.

Step One

First, the test compares your annualized income based on your average gross monthly income over the last six months to the median annual income for your household size in Minnesota. If you have a spouse but are filing bankruptcy individually, then your spouses’ income must be included in this calculation. There are, however, some deductions available for certain qualifying expenses of the non-filing spouse. These deductions are one reason it is very helpful to have an attorney help you complete the means test.

As of November 2014, the median annual income in Minnesota is $49,592 for a household of one, $65,398 for a household of two, $78,715 for a household of three, and $92,277 for a household of four. For each additional household member, you add $8,100.

If your annual gross income is less than Minnesota’s median annual income, then you have qualified for a Chapter 7 bankruptcy. However, if your annual income is greater than Minnesota’s median annual income, then you must continue on to the next part of the Means Test.

Step Two

The next step allows you to use living expense deductions for certain IRS standards, the amounts of which depend on where you are located and your family size. Deductions are made for certain necessities, such as food, clothing, shelter, transportation costs, health care, etc. Deductions can also be made for monthly payments on secured debts (i.e. car loans, mortgages, etc.) and child support payments, among others. The total amount of deductions are then deducted from your gross income calculated in step one.

Once the deductions have been subtracted from your gross monthly income you will be left with your disposable monthly income. Your disposable monthly income will then be used to determine whether you are able to pay 25% or more of your unsecured debts (i.e. credit card bills, medical bills, overdue utilities, etc.). If the test determines that you are not able to pay at least 25% of your unsecured debts, then you will qualify for a Chapter 7 bankruptcy. If you are able to pay at least 25% of your debts, then you may still qualify for a Chapter 13 bankruptcy, which involves a 3-5 year repayment plan.

Contact a Minnesota Lawyer

As you can see, the Means Test can require substantial analysis. It is recommended that you consult with an attorney to ensure that the calculation is done accurately and a manner most beneficial to your interests. Contact Heimerl & Lammers for a Means Test calculation and analysis.

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