It's hard to keep up with debt, especially when there are high interest rates being applied onto the loans. In 2014, there were a total of 910,090 bankruptcy filings in the U.S. Americans filing for personal bankruptcy generally get to choose between filing for bankruptcy under chapter 7, which involves liquidating and distributing all assets, or chapter 13, which involves repaying debts within a time period of 3 to 5 years. Although filing for chapter 7 bankruptcy is simpler, applicants must pass a means test.
Passing The Means Test Based on Income
The means test will look at your current monthly income and compare that amount with the median income for your state. To pass the means test, you must satisfy one of two requirements: (1) your income must not exceed the median income of your state or (2) the amount of disposable income you have must not exceed a certain threshold established by the bankruptcy courts for that particular year. The threshold will fluctuate each year based on factors like cost of living and inflation.
Almost any money coming in, whether it is taxable or not, is considered as income and will be used to calculate whether or not you pass the means test. The bankruptcy courts generally take a look at what your average monthly income is, and will include all sources for a six-month period prior to filing for bankruptcy. The income of each month is averaged out.
For example, if you were laid off from your job 4 months ago and had an income of $1,500 per month, your average monthly income is $500 per month. This is because you would have only worked 2 months within the last 6 months, and earned a total of $3,000. When you average out the earned income distributed across this time period, you get $500 per month. Because of how the average monthly income is calculated, the amount can be easily artificially inflated. For example, you may have received a one-time bonus before you filed for bankruptcy.
The Effects of Finding a Newer, Better Paying Job Upon Filing for Bankruptcy
If luck would have it and you found a newer and better paying job with an income above the state median, you may be concerned about whether your bankruptcy application will be dismissed or approved. A bankruptcy attorney can help you calculate whether you still pass the means test.
Because the means test looks at your income six-months prior to filing for bankruptcy, the income you earn from your new job may not be used when calculating whether or not you pass the means test. If you got a new job shortly before filing for bankruptcy, your average income is still calculated based on what you have already earned.
For example, let's say you landed a new job earning $72,000 a year after been jobless for a year, but have only worked for one month before filing for bankruptcy. You would have an average monthly income of $1,000. $72,000 a year works out to be $6,000 per month. Since you did not work prior to getting the job, and have only worked one month, you would divide your $6,000 monthly income by 6 months to get an average of $1,000 per month. This may or may not meet the requirements for the means test. Your bankruptcy attorney will mostly focus on the timing of when you should submit your bankruptcy application. If you have received too many paychecks, your average monthly income may increase and exceed the maximum amount allowed by the state. This may cause you to fail the means test, which will cause your bankruptcy application to be dismissed when reviewed by a judge.
Conclusion
It's never a good idea to file for bankruptcy without any legal consultation. If there is a possibility of landing a new job, speak with a bankruptcy attorney immediately. It is crucial for your average monthly income to still pass the means test in order for your application to be approved. This usually boils down to timing and the amount of paychecks you have already received. This makes the date you file for bankruptcy of utmost importance.
For more information about whether or not you should file for bankruptcy, contact an attorney or check out websites like http://www.wflaw.net.
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