What The Means Test Is In Bankruptcy

One of the first things a bankruptcy lawyer will do when you meet with him or her is complete a test known as the "means test." This test is a necessity when preparing to file for bankruptcy because it will determine which branches of bankruptcy you qualify for. Completing this test is not overly difficult, but it will require adding up all your income for the past six months. Here are several important things you should understand about the means test if you are considering filing for bankruptcy.

This Test Compares Your Income to the Average Income in Your State

The first thing to understand is that the means test is used to compare your income to the average income in your state. The average income in your state is often called the state's median income, and your lawyer will need to see if your income is above or below this amount.

If you have income that surpasses the state's median income, you will not be eligible to use Chapter 7 bankruptcy. You will only be eligible for Chapter 13 bankruptcy in this case. If, on the other hand, your income is less than the state's average, then you will qualify for Chapter 7 bankruptcy. It's important to understand that there are key differences in these two branches of bankruptcy, and one branch is typically better than the other for each person that files. You should also know that even if you qualify for Chapter 7, you may still want to use Chapter 13, simply because it might offer more relief for your unique financial situation.

How Your Lawyer Measures Your Income

To determine what your income is, your lawyer will need to know exactly how much money you have made during the last 180 days. To determine this, you will need to bring pay stubs with you, and you may even want to bring W-2 forms and your most recent tax returns. This information will help your lawyer see how much income you have earned from your job, but that is not the only income you must add into this calculation.

You are required by law to add in any other forms of income you have earned and received during the last six months. One such income could be child support. If someone pays you child support, you must show exactly how much money you have received from this person during the last six months.

Your income also includes any forms of cash windfalls you may have received. This could be bonuses from work, lottery winnings, or money you received from an inheritance. You must disclose every form of income you have had during this time, and your lawyer might ask to see your bank statements, simply to see if there is any income you may have forgotten about.

How This Works If You Are Married

If you are married, you should realize that you will need to include your spouse's income into this calculation too, even if you plan on filing alone. This calculation is based on the entire income of your household because that is what the state's median income represents. If you have anyone else living in your house, you may be required to include that person's income too.

How a Lawyer Can Help You Determine Which Branch to Use

If you qualify for both branches and are not sure which one to use, make sure you thoroughly discuss your situation with your lawyer. Your lawyer can help you weigh your options and decide which option would offer you the most relief. If you have not yet scheduled an appointment with a bankruptcy lawyer, contact a law firm today to learn more and to set up an appointment.