The Bankruptcy Means Test

Eligibility to File a Chapter 7 or Chapter 13 Bankruptcy Case

There are certain limitations on a person's eligibility to file bankruptcy under Chapter 7. One limitation is related to the amount of household income for a debtor. The calculation of household income can be complicated. A separate schedule is required to be filed with the Chapter 7 bankruptcy petition. It is called a Form 22 (A). It is important for a client to obtain the past 6 months of payroll information, business income information (for self employed persons), and the past two years' federal and state income tax returns. Every bankruptcy attorney will be required to review this information to determine whether the client is eligible to file a Chapter 7 bankruptcy case.

Determining Household Expenses

In addition to your basic household income, it is important to work with an attorney to determine household expenses. Documentation of your payroll deductions for taxes, retirement plan contributions, health insurance, union dues, etc. can often be found on your pay stubs.

There are many expenses that do not appear on your pay stubs that need to be provided to a lawyer, such as expenses for:

• An auto loan
• Auto insurance
• Mortgage payment
• Real estate taxes
• Utilities (electric, gas, cable television, satellite television, internet, cellular phone, etc.)

Other expenses should be determined on a monthly basis for a bankruptcy attorney, including:

• Contributions (“tithes”) to church
• Charitable gifts
• Food cost
• Daycare
• Fuel
• Vehicle maintenance
• School tuition
• School-related expenses (uniforms, school supplies)
• School activity fees (sports fees, equipment, travel expenses, etc.) .

Expenses for other items like auto insurance, home insurance, professional insurance, license fees, etc. should also be determined.

Self employed individuals should provide a bankruptcy attorney with an Income and Expense Statement that sets out gross income and expenses on a year to date basis (for current year). It is usually most helpful if the client consults with a Certified Public Accountant or a reputable software provider such as Quickbooks to complete these reports. Accurate, professional looking financial reports for a small business are important. Financial information in a Chapter 7 bankruptcy case is always examined by the panel trustee and sometimes the Bankruptcy Administrator. In rare cases, bankruptcy cases can be referred to an accounting or law firm for an independent audit. This means that the information provided to the attorney by the client should be as accurate and complete as possible.

Kevin Ryan is an experienced bankruptcy lawyer who will be there for you. Call us to set up a free telephone or office consultation.