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What is bankruptcy means testing?

 

Bankruptcy means testing is a mathematical formula used by bankruptcy attorneys to determine what type of bankruptcy relief a debtor can receive. Means testing was created by congress with the help of the credit card lobby to prevent bankruptcy abuse. The most likely mistake potential bankruptcy clients make is to first go online, late at night when they can’t sleep, and try to do means testing online. 95 percent of all San Diego residents who file bankruptcy wouldn’t fit the means test requirements online but still, qualify for bankruptcy. 0The bankruptcy means test is all about the math and how you put it together.

Means testing will determine if you can first even be considered as a candidate for a Chapter 7 bankruptcy, or if instead, you may be required to use a Chapter 13 case. This is an income-based means testing, and debtors who have income above the median income of their state are subject to the unpleasant limitations imposed by the Means Test. However, the analysis doesn’t end there; from the income on the Means Test, one gets to take certain deductions.

  • Taxes: You can deduct your tax obligations from your income on the means test as well.
  • Involuntary deductions: Deductions required for employment such as mandatory retirement plans, union dues, or uniforms.
  • Health, disability, or term life insurance
  • Secured debt payments These include payments on secured debts such as your mortgage or car loan. Even if your mortgage or car payment is above the national or local living standards, you can normally deduct it in full on the means test.
  • Court-ordered payments: If you are required to pay domestic support obligations such as alimony or child support, you can deduct these expenses on the means test.
  • Child care: Expenses for child care such as babysitting, daycare, or preschool.
  • Health care: If you incur more out-of-pocket health care costs (other than insurance) for you or your dependents than the allowed national standard, you may be able to deduct the actual amount you pay.
  • Education for employment or disabled child: You can deduct your education expenses if those expenses are required for your employment or for your mentally or physically disabled child.
  • Charitable contributions: If you regularly made charitable contributions prior to bankruptcy and expect to continue making those contributions, you can deduct them on the means test.
  • Care of elderly, chronically ill, or disabled: You can deduct the amount you contribute towards the care of an elderly or disabled family member or person in your household.

The Means Test determines if a bankruptcy petition must be assigned a “Presumption of Abuse” by the court. If your petition is assigned a presumption of abuse status, you must prove that your bankruptcy petition is not “abusive” or fraudulent. The rule of thumb so far, in practice, is that if the Means Test result is that “The Presumption of Abuse Arises,” it is extremely unwise to try and file the case as a Chapter 7. A bankruptcy attorney can properly do the Means Test for you and let you know what your options are. It’s a bad idea for you to rely on the so-called “Online Means Test Calculators” because the test is highly complex. The key to a thorough, accurate Means Test is not just getting in all the required income; it’s knowing how to apply bankruptcy law in figuring out how to maximize the allowable deductions. That is why just having a calculator isn’t going to do the trick.

bankruptcy means testing What is the Bankruptcy Means Test?

The Bankruptcy Means Test is a 2005 addition to bankruptcy law. Created as a way of disqualifying petitions for Chapter 7 bankruptcy protection, the bankruptcy means test takes into consideration a lot of complex factors to force more people into Chapter 13 than Chapter 7. The creditors’ lobby loves the bankruptcy means test, because it means they get paid more, and more often than they used to.

If you are starting to do your research about bankruptcy then you should not do an online means test   They’re abysmal.  I have never ever seen one that came out correctly. Not a single one in nearly 10 years has been correctly done. Even getting close isn’isn’t good enough. This is not horseshoes or hand grenades.

San Diego County residents who file bankruptcy

First, the bankruptcy means analysis measures your income against median income in the area. If you earn below the median income, there is a better chance the Chapter 7 will work. Most people in San Diego who are thinking about bankruptcy or at least who I speak to earn more than the proposed income of the means test. However, if your income is higher than the median, the bankruptcy means test becomes much more challenging. Don’t try to figure it out on your own.

I take the time to go through the bankruptcy Means Examination with each person who sits down with me to do a Fresh Start Planning Session. For free. It takes me about an hour, and I do it every day, four times a day. An online bankruptcy means test calculator will not give you the answers you need If you’re online trying to do your own Means Test it is the first sign that you’re in enough trouble that you really need to talk to a good bankruptcy lawyer.

So go ahead, research online. Educate yourself. Then please save yourself and more important the stress and ask a bankruptcy lawyer to qualify you. The Bankruptcy Means Test is also supposed to help determine if you would be able to pay off your debts under Chapter 13 bankruptcy protection. Using the bankruptcy means test, and a couple of other forms and formulae, the court will calculate your disposable income. This is done by mixing fixed expenses and estimates for variable other expenses. If it looks like you can pay off the debts within a three to five-year time frame, you’re in Chapter 13, not a 7. Call me to schedule your Fresh Start Planning Session. You’ll get the answers you need, all you have to do is ask.

The Law Office Of Paul Staley provides legal advice and representation for residents of San Diego County. The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.
Paul Staley
Bankruptcy Attorney
1901 1st Ave., FLR 1 San Diego, CA 92101
Phone: +619 235 40 95
Email: pstaley@paulstaley.com

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