If you are considering filing for bankruptcy in Washington, you may have to decide whether Chapter 7 or Chapter 13 bankruptcy is right for you. However, before you make a decision, you should know that not everyone qualifies for a Chapter 7 bankruptcy. In order to file for a Chapter 7 bankruptcy, you most likely will have to pass a bankruptcy means test.
How does the means test work?
Generally, your income and expenses to meet certain criteria in order to pass the means test and qualify for Chapter 7 bankruptcy. The test first looks at your income, then your expenses.
- Income – Your average monthly income for the six months leading up to your bankruptcy filing must be less than or equal to the state’s median family income. In order to calculate your income for the test, most sources of income will be considered, including wages, salary, tips, bonuses, unemployment, pension, rental property income, child or spousal support, and more. However, Social Security benefits (disability, retirement, or SSI), Temporary Assistance for Needy Families, and tax refunds are generally not included.
- Expenses – Once you have passed the income portion of the test, it is time to consider your expenses. If your income is still below the median after deducting all actual and standardized expenses, you will qualify for Chapter 7 bankruptcy.
Who can skip the means test?
While most debtors will be required to take the test, veterans who are at least 30 percent disabled and accumulated over 50 percent of their debt while on active duty or homeland defense can file for Chapter 7 bankruptcy without the means test. Filers who have accumulated most of their debt from running a business are also exempt from the means test.
What happens if I fail the means test?
If you can prove that you have special circumstances and request an adjustment to your income based on these circumstances, the bankruptcy court may decide that you can file for Chapter 7 bankruptcy after all. If you do not qualify under special circumstances, filing for Chapter 13 bankruptcy may be your best option. A bankruptcy law attorney can assist you with the means test and the filing process.