March 2

Learn More About Bankruptcy

Understanding The Bankruptcy Means Test

For anyone who wants to file a Chapter 7 bankruptcy, passing the means test is very important.This test only applies to filers with high income. It therefore means that if your income is not above
the median in Illinois for the size of your household, you do not have to take the test and you qualify for Chapter 7 bankruptcy filing. If you have an income that is higher than the median, then you will have to complete the test. The test determines whether you can pay some of the unsecured debts through filing for a Chapter 13 bankruptcy.

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The Exemptions

A person who has debts that are not primarily consumer based is exempt from the bankruptcy means test. If you incurred debts while on a homeland defense activity, you are a veteran, or you are disabled, you are exempt from the means test.

Median Income In Illinois

If your monthly income is below the median income in Illinois, it is assumed that you automatically pass the bankruptcy means test and qualify for Chapter 7 bankruptcy. The monthly income is determined by an average of the income you have acquired in the last 6 calendar months. If your income is above the median and it has declined in the 6 months period, then you might want to wait for a month or more to bring it below the median. Once the income average for the 6 months has been determined, it should be multiplied by 12 to get the the annual income for the means test.

The following is the median income as per household and members in the household.

1 Member – $47,536.00
2 Members- $61,253.00
3 Members – $70,014.00
4 Members – $81,680.00
5 Members – $89,780.00
6 Members – $97,880.00
7 Members – $105,980.00
8 Members – $114,080.00
9 Members – $122,180.00
10 Members – $130,280.00

The Means Test

If your income is above the median income in Illinois for the size of your household, then you will need to go through the means test by calculation of your income and expenses. Some of the information you will need for the calculation include current income per month. Income refers to all sources including but not limited to rental income, business income, dividends and interests, retirement plans, pension, unemployment income and amounts paid by other people for your expenses.

Most of the information on your expenses will be based on the local, Illinois, and national averages that are decided by the Census Bureau and the IRS. Some of the actual expenses you will be allowed to include are health and welfare expenses and legal obligations you need to pay such as child support.

After collecting all the required financial information involving the income and expenses, you need to subtract the allowed expenses under Illinois median and determine the income amount available to pay the unsecured debts under Chapter 13.

If your total income over the next 60 months is below $7,475, then you automatically pass the means test and can file for Chapter 7 bankruptcy.If the income is above $12,475, you fail the means test and filing for Chapter 7 bankruptcy will not be an option for you. If the income falls between $7,475 and $12,475, you will need more calculations to determine whether Chapter 7 bankruptcy filing is a viable option.

Always keep in mind that the fact that you qualify for Chapter 7 bankruptcy does not mean that you should use it. Chapter 7 is only a better option when you are not willing to keep secured properties such as a home with a mortgage. The best option here is to talk to the best Illinois bankruptcy attorney to review the options available and the best action to take.

Ranjha Law Group, P.C.  525 N. Broadway #5447 Aurora, IL 60505 (630) 538-7120