5 Mistakes to Avoid While Taking the Means Test
When filing Chapter 7 bankruptcy, one of the most important steps is taking the means test, which determines whether or not you are financially eligible to file bankruptcy. The means test is a seven-page form that includes your income and your expenses. Unfortunately, people make many mistakes during the test that can jeopardize their eligibility. Here are five of the most common:
The income you put on the means test is calculated over the six-month period prior to filing bankruptcy, then divided by six to give you an average monthly income. If your home has several incomes or some of your household members are working two jobs to make ends meet, that may be difficult to calculate. Business and rental income must also be included in this six-month period. If your income is below your state’s median income, you pass the means test. Your income much match the documents that you submitted along with your bankruptcy filing.
Your expenses for the last six months must also be accounted for. Things like rent or a mortgage, groceries, medical expenses, and clothing are allowable expenses and are based on both national and local standards set by the Internal Revenue Service. Any income left over after paying these things is considered disposable income, which could be put toward existing debt. If your disposable income is low enough, you may still qualify for Chapter 7. Making mistakes during this complicated process can be detrimental to your case.
3. Household size
In general, the household occupants are determined by those who generate income and those who are financially dependent on those occupants, such as children or an elderly parent. A tenant, however, would not count as a household member.
4. Mixing business and personal debt
If you used your credit cards to operate a business, for example, that debt is considered business debt, while using credit to purchase appliances or other needs are considered consumer debt. If your business debt exceeds your consumer debt, you do not qualify for the means test.
Certain expenses such as those regarding retirement savings are not deductible, although standard utilities are. Not taking allowable deductions such as property taxes and insurance that are not part of mortgage escrow should be included.
What’s the worst that could happen?
If you make a mistake on the means test, the court will make a motion to dismiss your bankruptcy filing or will object to the discharge of your debt. The United States Trustee – sometimes referred to as the bankruptcy police – will call you in for interviews about the figures used on the means test. If the United States Trustee believes that your deliberately misled the court with the wrong figures, you will not be able to file bankruptcy on your existing debts again.
An experienced bankruptcy attorney such as those part of the team at Maxwell Dunn can help guide you through the complex process. For more information or to set up an appointment, contact Maxwell Dunn’s team at 248-246-1166.See all videos