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What is the means test, and will I pass it?

Consumers who are considering filing for Chapter 7 bankruptcy protection usually must pass a means test first to qualify.

Initially, debtors must average their income for the half-year prior to the filing of the petition for bankruptcy relief. They qualify as long as their earnings were not more than Arizona's median family income. In some cases, trustees can intervene even when debtors pass the means test if they discover that the debtors have money left after expenses to pay back their creditors. Those bankruptcies may then convert to Chapter 13 bankruptcy restructuring.

To correctly calculate a debtor's income, all of the following should be included:

-- Wages or salary (bonuses, commissions, tips and overtime)

-- Gross proceeds from royalties, dividends, professions, businesses or interests in farm property

-- Unemployment compensation benefits

-- Child and/or spousal support

-- Worker's compensation benefits

-- Arizona disability payments

-- Rental income

-- Annuity payments

The means test does not consider income from Temporary Assistance for Needy Families, retirement benefits from Social Security, Supplemental Security Income, Social Security Disability Insurance or tax refunds.

Debtors earning more than Arizona's median income face the second phase of the means test. This section deals with the debtor's standard and actual allowable expenses. Sometimes an otherwise unqualified debtor will be allowed to file Chapter 7 if they can prove special circumstances exist.

Some possible examples of these extenuating circumstances could be high rent, recent job losses or serious illnesses.

Even if all efforts fail and a debtor is not able to pass the means test to file for Chapter 7, all hope is not lost. The attorney handling the bankruptcy case can convert it to a Chapter 13 debt restructuring and repayment plan.

Source: Findlaw, "The Bankruptcy Means Test," accessed May 24, 2017

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  • MCBA | Maricopa County Bar Association
  • State Bar of Arizona
  • ABA | American bar Association | Defending Liberty Pursuing Justice
  • Oregon State bar
  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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