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Financial difficulties can put your resilience, patience, and even sanity to the test. All of those exams can be completed by filing for Chapter 7 bankruptcy, but filing will need passing one more test. We refer to it as the means test.

Continue reading to find out more. Please don’t hesitate to contact our knowledgeable and polite staff if you need assistance with the means test or any other aspect of your bankruptcy case.

Statistics on Individual Bankruptcies

It’s important to comprehend why the means test may be worthwhile to go through even in cases where Chapter 13 bankruptcy does not call for it before delving too far into it.

Seven out of ten individuals filing for personal bankruptcy select Chapter 7 liquidation over Chapter 13 restructuring, according to national statistics. During the one-year period ending March 31, 2012, 396,175 Chapter 13 filings were made as opposed to 958,757 Chapter 7 filings.

The explanations are rather obvious: Three to six months may pass between a Chapter 7 discharge and a five-year reorganization plan in almost all Chapter 13 cases. In addition, because to state and federal exemptions, Chapter 7 filers frequently do not lose any property.

Furthermore, you might not be able to file for Chapter 13 bankruptcy, in which case the Chapter 7 means test would need to be your backup plan. This is because Chapter 13 does not have an income ceiling; but, you might not be able to petition under Chapter 13 if your income is insufficient to cover your creditors’ reasonable debts.

Chapter 7: Maximum Income

Most likely, you’ll want to file for Chapter 7 bankruptcy unless you’re seeking to keep your property from going through foreclosure. But what happens if you have a pretty high household income? Since the bankruptcy code was redesigned in 2005, filing for Chapter 7 bankruptcy requires that an applicant’s income level be met. You can file for Chapter 7 bankruptcy protection if your income is less than the state median income for the size of your household. In Illinois, for instance, the median income for a family of four was $107,226 in July 2021.

The Means Test: What Is It?

It’s crucial to realize, meanwhile, that a household income above the state median does not always imply that a Chapter 7 is unaffordable. Instead, you can use the “means test,” a complex formula that can only be understood with the assistance of a knowledgeable bankruptcy attorney.

With the 2005 amendments to the federal bankruptcy code, the means test was instituted with the goal of guaranteeing that debtors who have the means to make at least a partial payment to creditors file under Chapter 13. The intricate mathematical formula’s final objective is to ascertain if the debtor will have enough money left over after expenses are covered to reimburse creditors.

Your Salary and the Means Examination

It should be clear to you by now that the most important consideration in the Chapter 7 means test is your income. It’s not an easy calculation, though. It is not possible to determine if you have “passed” the means test by just entering in your pay. Numerous other factors are involved as well, such as the duration of your computations, your household size, deductions, and more.

Timing of Income Calculations

The means test has been criticized in the past for being too complicated and having a unique calculation method. For instance, the computation does not use the debtor’s current income as the average. The debtor must instead calculate the average of their income over the previous six months in order to pass the means test.

This six-month period may occasionally become more difficult due to changes in your work status or job. For example, if you were unemployed for the past six months after working at a high-paying employment for five of those months, an expert attorney can assist you in accounting for that change in your means test results.

Revenue Sources

You must include sources of income other than your base wage when calculating your income for the means test. The following are some instances of revenue sources that your calculations must take into account:

Your pay
Any money from a side gig or freelance work
Income for retirement
Child support and alimony
Income from unemployment
Costs to Factor Into Your Estimate
Furthermore, the debtor’s current spending do not correspond with the amounts computed for the test. Expenses are not determined by the debtor’s actual expenses, but rather by both local and national norms. For instance, there is a nationwide figure to use, which is updated on a regular basis, for the spending categories of food, housekeeping supplies, clothes and services, personal care items and services, and miscellaneous. The only spending categories where a debtor can incorporate their actual payments in the means test computation are mortgage and auto payments.

Income and Household Size in the Means Test

Your household size will play a major role in whether or not you pass the means test. This is so because the means test income ceiling is based on the number of persons living in your household. That income ceiling will rise in proportion to the number of people living in your home.

For instance, in Missouri, a single-person household’s 2021 Chapter 7 income ceiling is $50,521. However, the cap is $89,418 if there are four people living in your home. Remember that you have passed the means test if your income is below the income limit and you are thus immediately qualified to file under Chapter 7.

It should be pretty easy to calculate the revenue limit if your household size situation is basic. To find out how the court where you will file for bankruptcy determines household size, you may need to speak with your bankruptcy attorney or trustee in more complicated scenarios involving non-resident dependents and related matters.

How to Find Out If You Qualify for Chapter 7 Bankruptcy

The amount left over, if any, after deducting expenses from income determines whether a debtor has sufficient disposable income to be eligible for a Chapter 13 filing. The assumption is that the debtor can afford to pay creditors and should file under Chapter 13 if the projected disposable income over a five-year period is more than $10,000.

A debtor is likely to be eligible for Chapter 7 bankruptcy if their disposable income for the five-year period is less than $6,000. You guessed it: an additional computation is triggered if a debtor’s disposable income is between $6,000 and $10,000.

This formula looks at the ratio of disposable income to the total amount of debt that is unsecured. The debtor will probably not be allowed to file for Chapter 7 if their estimated disposable income over a five-year period exceeds twenty-five percent of their entire amount of unsecured debt. The debtor is likely to pass the means test and be permitted to proceed with a Chapter 7 filing if the percentage is less than 25 percent.

If I Pass the Means Test, What Happens?

Good news! You can proceed with filing for Chapter 7 bankruptcy if you pass the means test. That does not mean that the work is done, though. While it usually takes less time than Chapter 13, the Chapter 7 procedure is more involved and can take many months. A reputable Chapter 7 attorney can assist you in keeping things going forward.

If I Don’t Pass the Means Test, What Happens?

Don’t give up if you don’t pass the means test. It’s possible that you can still file for Chapter 13 bankruptcy. Additionally, you can recalculate the means test results to check if you pass in the event that your income or financial circumstances alter. You can “retake” the means test as much as you’d like because it’s just a calculation that you do. Additionally, you can file for bankruptcy under Chapter 7 after passing it.

Chapter 7 Means Test: Required Forms

The forms used in Chapter 7 are test functions, which are worksheets that assist you in performing proper calculations. These are the forms that you must complete and submit with your bankruptcy.

The forms you’ll need are as follows:

Form 122A-1. The “Chapter 7 Statement of Your Current Monthly Income” is the name of this form. All this paper does is assist you in determining whether your income is less than the state median income. You have passed the means test if it is less than the median. This implies that you are not eligible to use the other two forms on this list.
Form 122A-2. If your salary exceeds the state median, you must complete out this form, which is called the “Chapter 7 Means Test Calculation.” This form will be used to calculate your take-home pay after deducting permitted costs. This will assist in determining if Chapter 7 or Chapter 13 may be appropriate for you.
Form 122A-1Supp. Ascertaining your genuine exemption from the means test is made easier with the use of the “Statement of Exemption from Presumption of Abuse Under § 707(b)(2).” For example, the means test may not be required of certain military personnel.

Filing for bankruptcy a second time, often referred to as a repeat or multiple bankruptcy filing, is possible under certain circumstances, but it comes with additional challenges and considerations compared to a first-time filing. Here’s what you need to know:

Chapter 7 Bankruptcy

Waiting Period:

• Eight-Year Rule: If you previously filed for Chapter 7 bankruptcy and received a discharge, you must wait eight years from the date of the first filing before you can file for Chapter 7 bankruptcy again and receive another discharge.
• Chapter 13 to Chapter 7: If you filed for Chapter 13 bankruptcy and want to switch to Chapter 7, you typically must wait six years from the date of filing for Chapter 13.

Consequences:

• Impact on Discharge: If you file for Chapter 7 bankruptcy before the eight-year waiting period elapses, you won’t receive a discharge of your debts. Instead, your case may be dismissed, and creditors can resume collection efforts.
• Complexity of Case: The court may scrutinize your second bankruptcy filing more closely, particularly if it’s filed shortly after the first one. You may need to demonstrate a significant change in circumstances to justify the need for another bankruptcy.

Chapter 13 Bankruptcy

Waiting Period:

• Two-Year Rule: If you previously received a discharge in a Chapter 13 bankruptcy, you must wait two years from the date of the first filing to receive another discharge in Chapter 13.
• Four-Year Rule: If you previously received a discharge in a Chapter 7 bankruptcy, you must wait four years from the date of the Chapter 7 discharge before filing for Chapter 13 bankruptcy and receiving another discharge.

Consequences:

• Modification of Repayment Plan: If you filed for Chapter 13 bankruptcy before and are seeking another discharge, the court may scrutinize your repayment plan to ensure that creditors are receiving a fair distribution of payments.
• Increased Oversight: The court may closely monitor your compliance with the repayment plan, particularly if you’ve filed for Chapter 13 bankruptcy multiple times.

Considerations for Multiple Bankruptcy Filings

1. Financial Management: Before considering a second bankruptcy filing, explore other options for managing your debts, such as debt consolidation, negotiation with creditors, or credit counseling.
2. Legal Advice: Consult with a qualified bankruptcy attorney to assess your financial situation and explore the best course of action. They can provide guidance on whether bankruptcy is the most suitable option and help you navigate the process.
3. Long-Term Financial Planning: Consider the long-term impact of a repeat bankruptcy filing on your credit score, financial stability, and ability to obtain credit in the future.
4. Addressing Underlying Issues: Evaluate the reasons for your financial difficulties and take steps to address any underlying issues, such as overspending, job loss, or medical expenses, to prevent future financial crises.

While it’s possible to file for bankruptcy multiple times, doing so comes with additional challenges and consequences compared to a first-time filing. Before pursuing another bankruptcy, explore alternative solutions and seek professional advice to make an informed decision based on your individual circumstances and long-term financial goals.

If you have filed for bankruptcy under Chapter 7 or Chapter 13 before, can you do the same again? Can a debtor in Arizona file for bankruptcy multiple times? It’s not uncommon for Arizonians to fall into hard times and become severely indebted once or twice. Technically, it is possible to file for bankruptcy more than once under Arizona law and the applicable federal laws. However, the law specifies certain circumstances under which a debtor can actually do that.

BAPCPA and Multiple Bankruptcy Filings

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into to effect. The law made it less easy for debtors to file for Chapter 7 bankruptcy. The idea is to prevent unwarranted practices by higher income individuals who file for Chapter 7 bankruptcy to take advantage of its debt discharge clauses. BAPCPA aimed to force rich debtors to file for Chapter 13 instead and to pay back what they owe under a court-mandated payment plan.

As a result of BAPCPA, there are now several significant limitations for multiple Chapter 7 or Chapter 13 bankruptcy filings in Arizona.

What are the Limits on Multiple Bankruptcy Filings?

Here is a list of the most significant limitations to multiple bankruptcies that debtors should be aware of:

• Debtors must wait for at least 8 years before filing for another Chapter 7 bankruptcy. The days are counted from the day the debtor filed the first Chapter 7 bankruptcy case. From then on, the debtor must wait exactly 8 years before filing for bankruptcy under the same chapter once again.
• Debt discharges during the second bankruptcy could be more impaired based on discharges offered during the earlier bankruptcy filings. For example, if you are filing for a Chapter 13 bankruptcy, you cannot obtain a debt discharge if you were granted an earlier Chapter 13 debt discharge in the previous two years. If you have obtained a debt discharge under Chapter 7 in the previous 4 years, then you can’t get a Chapter 13 discharge for a new case. However, this doesn’t prevent you from being able to file for a Chapter 13 bankruptcy.
• You can file for Chapter 13 bankruptcy regardless of how many bankruptcies you have filed before. There are certain circumstances, such as owning too much mortgage debt, that allow debtors to do this. Chapter 13 filings are accepted even for issues like needing a payment plan to pay off taxes owed.
• Filing for Chapter 13 bankruptcy, regardless of precious bankruptcy history, enables automatic stay on a current debt between three to five years. However, the court must be specifically requested to enforce the automatic stay if you have had a bankruptcy dismissed by the court during the previous 12 months.

The above limitations are not too restrictive when it comes to filing for another bankruptcy. If your case is complicated, you must consult with an experienced Arizona bankruptcy attorney. Keep in mind that you may not be able to keep filing for Chapter 7 bankruptcy in rapid succession as per the recently amended rules and regulations.