Given my debts, which type of bankruptcy is best for me?
When Congress changed the U.S. Bankruptcy Code in 2005, a new process was put
into place to help one decide which type of bankruptcy (Chapter 7 or Chapter 13)
they are qualified to file. This process is called the “means” test. There
really is no such formal name, but that’s what it has become known as by the
public. The “means" test is an analysis of your income over the past six months
with the end result used to determine whether or not you have the “means” to pay
back a portion of your bills in a Chapter 13 filing, or whether you should be
allowed to proceed in Chapter 7.
What does your attorney need? The attorney inputs data from all sources of
income over the six-month period ending on the last day of the month prior to
filing. So, if you filed for bankruptcy on February 6, 2010, the attorney will
be looking at income from August 1 through January 31, 2010. After many
calculations, a number called Current Monthly Income is arrived at and that
number is compared to the state’s median income and debtor’s household size to
determine whether or not the debtor belongs in Chapter 7 or
Chapter 13.
Income is income, right? Not really. Social security payments or payments that
are funded through the social security act (which covers foster care, adoption
subsidies, Aid to Children and Families (TANF) etc.) are not considered income.
Tax refunds are not income. Pension payments are income. Disability retirement
(military or otherwise) is income. Your attorney will need to look at each and
every pay-stub, every award letter, and any piece of documentation you get for
money received. For self-employed people, the attorney will be looking at income
received and expenses going out in order to determine the appropriate income for
each month. Gifts from family are not income, but insurance proceeds or payouts
are income.
Your attorney needs as much information as they can get from you and then some.
The form that Congress mandated for the “means” test is a seven page form and
each line involves numerous calculations in order to make sure the right data is
put on the form.