- Author: George Haines
- Published
If you are struggling with your debts, pressured and almost intimidated by the never-ending phone calls from your creditors, filing for a Chapter 7 bankruptcy might have crossed your mind. However, the bankruptcy option you might want to file will burden you more instead of easing things especially if your knowledge and understanding of the process is quite limited.
Individuals in debt look forward to Chapter 7 bankruptcy as a way to solve their debt problems and have a fresh start. Promising as it may seem, there are procedures in place that need to be adhered to and a process that one had to go through. One determinant if you are qualified to file for Chapter 7 bankruptcy is the Means Test.
What is Means Test?
For you to qualify for Chapter 7 bankruptcy, it is a must that you take the Means Test and pass it. This is a unique way of determining if you will qualify for Chapter 7 or if Chapter 13 applies more to your debt status. To put it simply, the main goal of the Means Test is to prevent people from completely erasing their debts with Chapter 7 bankruptcy when they can actually afford to make debt payments under Chapter 13 bankruptcy.
It should be noted that in Nevada, you only need to take this test if your debts are consumer debts, not business debts. Consumer debts are personal debts that are owed as a result of purchasing goods that are used for household or personal consumption.
The test also looks into you’re your finances such as:
- income, if it is below or higher the Nevada median;
- expenses; and
- family size.
Most likely, if your income is below the Nevada median, you may file for Chapter 7. If your income is higher than the Nevada median, the test will determine if you can pay back a portion of your debts through a Chapter 13 bankruptcy.
The median income is the amount figure that will qualify you in which population group you belong:
- having an income above that amount; or
- having an income below that amount.
How Does the Means Test Work?
As mentioned earlier, the Means Test looks into your income. Your annual income compared with the Nevada median income will determine which type of bankruptcy you might file for.
Your average income is determined by this simple computation:
Total income for 6 months ÷ 6 = average monthly income x 12 = annual income
For a clearer picture of the median income as standard, check the breakdown below:
Single-person household – $54, 394
Two-person household – $69, 804
Three-person household – $77, 536
Four-person household – $84, 764
*For households exceeding four members, add $8, 400 for each individual in excess.
However, it should be noted that these standards change often to reflect inflation and cost of living in Nevada.
If your income computation shows that it is over the Nevada median income for a household your size, the test will have to be completed by calculating your income and expenses.
Income may include the following:
- business income;
- rental income;
- dividends;
- pensions and retirement plans;
- amounts paid by others for your household expenses; and
- unemployment income.
Expenses may include the following:
- food;
- clothing;
- health care;
- housing rent;
- mortgage;
- utilities;
- vehicles;
- federal tax exemptions and dependents;
- taxes;
- child support and alimony;
- childcare expenses;
- private or public elementary or secondary school expenses; and
- expenses for caring for elderly, ill or disabled members of your household.
Means Test Exemptions
Most likely, you will really have to go through the Means Test if you intend to file for Chapter 7. However, there are exemptions where you do not have to go through it. You are exempted from taking the means test under the following conditions:
- if your debts are non-consumer debts;
- if you are a disabled veteran and accumulated most of the debt while on active duty or performing a homeland defense activity; or
- if you are a military reservist or a National Guard member called to active duty after September 11, 2001.
Freedom Law Firm is here to help.
Bankruptcy is often the last but necessary resort. Going through the Means Test makes it a more delicate and complex proceeding, and you want someone with plenty of experience to consult with and guide you through the process of passing the test, thus, qualify for a bankruptcy protection most suited for you.
If you would like to find out whether bankruptcy is the right option for you, please request a call-back by submitting a short online form. All initial consultations are free and confidential.
