Garcia & Gonzales, P.C.
What Is the Means Test for Bankruptcy?
When people struggling with debt decide to pursue bankruptcy in Colorado for a financial fresh start, one of the things they will need to do before they can officially file their petition with the court is to take the means test.
The bankruptcy means test is essentially a complex calculation that determines whether prospective bankruptcy petitioners quality for Chapter 7 bankruptcy. Those who “pass” the means test can pursue Chapter 7 bankruptcy in Colorado while “failures” mean that petitioners will have to pursue some other type of bankruptcy case, such as a Chapter 13 case.
To shed some more light on what the means test is and how it works, below are some of the most important facts to understand about it.
The Facts about the Means Test for Colorado Bankruptcy
- The means test is only used for consumer-related debt – In other words, the means test will not be applied for business-related debt or business bankruptcy cases. When there may be grey areas about what constitutes consumer versus business debt, this determination will usually be up to the court.
- The means test is intended to prevent fraud and improve transparency – In particular, since 2005, the means test has been a qualification standard that must be passed before a Chapter 77 bankruptcy case can be pursued in order to ensure that high-earning debtors could not take advantage of debt discharges at creditors’ expense. So, for those who have the ability to repay their unsecured debts because they are earning higher incomes (higher than the median for their state), discharging debt via Chapter 7 is not an option.
- The means test will specifically evaluate a petitioner’s income level – And, more precisely, the test will assess whether a prospective petitioner’s income is greater than the median income (for a family or household similar to yours) in your state. So, for instance, if you are single filer and the sole earner of your household, your annual average income must be less than the median for single earners in your state in order for you to quality for Chapter 7 bankruptcy.
- When couples want to file for bankruptcy jointly, both of their incomes will be included in the means test – And this is important to understand because it can increase the chances that joint filers will not quality for Chapter 7 bankruptcy if even one partner’s income is relatively high. In these situations, joint filers may want to consider filing separately if filing for Chapter 7 is preferable for one party.
Contact an Experienced Denver Bankruptcy Lawyer at Garcia & Gonzales, P.C.
Are you looking for real relief from serious debt? If so, you can trust the experienced Denver bankruptcy lawyer at Garcia & Gonzales, P.C. to provide you with experienced help and honest answers about your best debt relief options.
To learn more about how we can help you get out from under overwhelming debt, contact us today by calling or by emailing us using the contact form at the bottom of this page.
When you contact us, you will communicate directly with one of our attorneys, not a paralegal or legal assistant. We welcome Spanish-speaking individuals to contact us also – hablamos Español.