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What the "Means Test" Means for Your St. Louis Bankruptcy Case
The Castle Law Office helps people in the greater St. Louis area get through the bankruptcy process without losing the property that they own. With the economy in its current deplorable state, more and more St. Louis residents are experiencing crushing debt. Credit card bills, ballooning mortgage payments or debt from medical bills are a very real concern for people in Missouri and Illinois. If you or a loved one are suffering from insurmountable debt, contact the Castle Law Office for a free consultation today.
Starting in 2005, the rules regarding personal bankruptcy filings in America were altered. The standards involving filing for Chapter 7, or total debt liquidation, were made a little tougher. In order to qualify for the complete removal of your debts through Chapter 7 bankruptcy, Americans now have to pass what is called a “means test.”
Those who don’t pass the means test but still want to file for debt relief through bankruptcy will have to file for Chapter 13 reorganization, which is simply a legal term for a court ordered payment plan. A lot of people with financial problems are worried that the new rules will prevent them from filing and that they will be stuck with their debt for the foreseeable future. That is not the case. The means test is not an insurmountable obstacle, and a qualified bankruptcy attorney can help you get through it.
How the Means Test Works
The means test has two parts. The first part simply compares the median income of a family of your size in your state. Since median incomes vary from state to state, qualifying might be easier than you think. For instance, the median income in Missouri is significantly less than the median income in Illinois or New York.
If your family income is higher than the state median for a family of your size, that doesn’t mean that you automatically don’t qualify for Chapter 7. What it means is that you simply have to go to the second part of the means test.
The second part of the means test is a somewhat complicated formula, but a qualified and experienced bankruptcy attorney should be able to work through it with you. The IRS has guidelines that determine what are called “allowable expenses,” which means rent, utilities, groceries, etc. These expenses are subtracted from your total income to determine your level of “disposable income,” which is money that you have left that you don’t put towards your debts. If your level of disposable income is less than $6,000 over five years, you can qualify for Chapter 7. But if your disposable income is $10,000 or above, you will have to consider Chapter 13.
If your disposable income is between $6,000 and $10,000, this is considered a pretty grey area. What you have to do is compare your disposable income over the next five years to a percentage of your unsecured debt. They do this to figure out if any sort of repayment plan of your debt is possible. If your disposable income is greater than 25% of your unsecured debt (by this we mean credit cards, medical bills, etc.), then this is viewed the same as having over $10,000 worth of disposable income. If your disposable income is less than 25% of your unsecured debt, then you, for lack of a better term, “pass” the means test and can qualify for Chapter 7.
A Qualified Bankruptcy Attorney is Crucial
Not qualifying for Chapter 7 is certainly not the end of the world. A Chapter 13 reorganization can still make your life significantly easier, and the upside is that the effects of a Chapter 13 bankruptcy don’t last nearly as long as a Chapter 7.
But regardless of which sort of bankruptcy you qualify for, the importance of having a qualified and experienced bankruptcy attorney is absolutely crucial towards obtaining terms that are favorable to you. It is entirely possible to initiate the bankruptcy process without losing your home or other property, and it is entirely possible to get through bankruptcy with your dignity intact.
At the Castle Law Office, we make it a point to get St. Louis area citizens through bankruptcy without having their lives disrupted and upended. We know from experience that a life lived under debt is not much of a life at all. If you or a loved one in St. Louis is considering filing for bankruptcy, contact the Castle Law Office for a free legal consultation today.
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