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Common Mistakes Made on the Bankruptcy Means Test

Debt may make you feel helpless since it threatens your ability to support your family and your financial future. There are common mistakes made on the bankruptcy means test that prevent debtors from receiving the relief they need. Fortunately, you won’t need to handle your financial problems alone if you engage with Kurland Law Group. 

Our bankruptcy attorneys have aided clients in finding effective answers to complex problems. We have successfully represented people, families, and businesses in a variety of bankruptcies. You’ll be able to obtain debt relief and move past it with our assistance.

Find out if you are eligible to file for bankruptcy and how a Rockville Kurland bankruptcy lawyer can fight for the financial assistance you are entitled to. Call our bankruptcy law firm today to schedule a consultation!

Why do I Need a Bankruptcy Lawyer for a Bankruptcy Means Test?

The means test is an important part of the bankruptcy process in Maryland, and it’s crucial to have a knowledgeable and experienced bankruptcy lawyer to help you navigate this aspect of your case. Here are some reasons why you might need a bankruptcy lawyer from Kurland Law Group:

  • Understanding the means test: The means test is a complex calculation used to determine whether you are eligible to file for Chapter 7 bankruptcy or whether you must file for Chapter 13 bankruptcy. A bankruptcy lawyer can help you understand the means test and what it means for your case.
  • Accurately completing the means test: The means test requires detailed financial information, and it’s important to ensure that the calculation is accurate in order to avoid any potential issues during the bankruptcy process. A bankruptcy lawyer can assist you in accurately completing the means test and ensuring that your eligibility is correctly determined.
  • Maximizing your eligibility for Chapter 7: If you are eligible to file for Chapter 7 bankruptcy, it’s important to ensure that you take advantage of this option, as it allows for a quicker and more complete discharge of your debts. A bankruptcy lawyer can help you maximize your eligibility for Chapter 7 and ensure that you receive the maximum discharge possible.
  • Minimizing your payment obligations in Chapter 13: If you are not eligible for Chapter 7, you will be required to file for Chapter 13 bankruptcy, which involves a payment plan to repay some or all of your debts over a three- to five-year period. A bankruptcy lawyer can help you minimize your payment obligations in Chapter 13 and ensure that your plan is affordable and feasible.

Overall, having a bankruptcy lawyer to assist with the means test can provide you with the support and guidance you need to make informed decisions about your bankruptcy case and to ensure that your eligibility is accurately determined and your rights are protected.

What is Bankruptcy Means Test?

Not everyone, however, qualifies for Chapter 7 bankruptcy filing. To determine whether you are, you must first pass the Chapter 7 bankruptcy means test.

The means test in bankruptcy is a measure used to evaluate if an individual’s income is too high to qualify for a debt discharge. The means test takes into account both income and expenses like mortgage and car payments. To pass the bankruptcy means test, you must first compare your average monthly income over the previous six months to the median monthly income in the state of Maryland. If your income is lower, you may apply for Chapter 7 bankruptcy without having to pass the means test.

If you have a higher monthly income, you may use an online bankruptcy means calculator to determine if you are eligible to apply for Chapter 7 bankruptcy in Maryland.  If you fail the means test due to your income being too high to apply for Chapter 7 bankruptcy, you may still be qualified for Chapter 13 bankruptcy filing, which may be the better choice in the long term for restoring credit and paying current debt obligations.

What are the Common Mistakes Made on the Bankruptcy Means Test?

Not everyone qualifies for debt forgiveness under Chapter 7 bankruptcy. To pass the means test, you must prove that you are unable to pay back your debts. Even though the means test provides instructions for each item, you should still read it well because it is a long and complicated form.

The three forms related to the means test can be found on the US Courts Bankruptcy Forms website:

  • the Chapter 7 Statement of Your Current Monthly Income (Form 122A-1),
  • the Statement of Exemption from Presumption of Abuse Under Section 707(b)(2) (Form 122A-1Supp), and
  • the Chapter 7 Means Test Calculation (Form 122A-2). 

Here are some general guidelines to assist you to steer clear of unwelcome means test examination.

Household Size Miscalculation in Means Test

Using the right household size on the means test can affect whether you can file for Chapter 7 bankruptcy. The greater your family size, the more money you will be able to earn on the means test.

While calculating the size of your household may seem simple, bankruptcy courts use many methods to identify who qualifies as a household member. Under the “heads on beds” rule, many courts allow you to include all dependent family members living with you. However, not all courts do. Call Kurland Law Group for a FREE PHONE CONSULTATION to learn about different options and which one to use.

Incorrect Means Test Income Reporting

To determine if you qualify for Chapter 7 bankruptcy, you will use your average income for the six months prior to filing. You will use the entire six-month period ending on the final day of the month prior to the filing date. This amount is multiplied by two and compared to the median income for a household of the same size in Maryland.

The income figure on your means test may be significantly different from your genuine year-to-date income and from your present income because you’ll be using the six months for calculations. Make sure to compute your six-month average with each source of reportable income according to the instructions on the form.

Including Social Security Income on the Means Test

Any Social Security benefits you receive for yourself or on behalf of other people, such as a dependent child, are not counted as income when taking the means test. This has the clear advantage of reducing your income and gives you a higher chance of passing the means test.

But no matter how your means test turns out, you will still need to fill out Schedule I: Your Income. Schedule I, which must include your Social Security benefits, shows to the court the income you expect going forward.

Failure to Claim Means Test Deductions

The means test can involve multiple steps. You will be given a second chance to pass if your income is higher than the median for your state. In order to establish whether you have enough money left over to pay your creditors, you must remove the allowed deductions from your income. Others will be predetermined, while others will be actual expense amounts. Use all of the deductions that are available to you.

However, not all expenses are deductible. For instance, loan payments and voluntary contributions to retirement plans are not deductible. Additionally, even if they don’t make monthly payments on a car loan or lease, many debtors incorrectly claim the standard car ownership deduction. In general, you can use the vehicle operation cost on the means test but not the auto-ownership deduction when you own your vehicle free and clear.

Read the instructions for every expense deduction carefully to ensure you do not claim any expenses on the means test that you are not entitled to in order to prevent a dispute with the bankruptcy trustee.

Not Using the Chapter 7 Marital Adjustment Deduction

If you are married but file for bankruptcy without your spouse, you still must list the income of your non-filing spouse on the means test if you live together. If your spouse earns a large income, passing the means test may be more difficult for you.

Nevertheless, the part of your non-filing spouse’s income that is not applied to your household expense can be excluded under the means test in the marital adjustment deductions section. Therefore, the marital adjustment section could help you in passing the means test by reducing your income.

Tax Reporting in Chapter 7

Many debtors use the monthly amounts deducted from their paychecks to determine their income tax expenses for the means test. However, under the means test, you may only deduct your actual tax liability. So, if you get a huge tax refund every year, you may be overstating your tax deduction by using withholdings.

Call Our Rockville Bankruptcy Lawyer Now!

The means test might fail for a variety of reasons, and this is just the tip of the iceberg. Some laws are context-specific and differ between jurisdictions and courts.

The lesson here is that a bankruptcy attorney will be able to identify both established and new difficulties and will have knowledge of how your bankruptcy court will address those issues.

All potential clients are eligible for a free phone consultation at the Kurland Law Group. Contact our Rockville, Maryland, bankruptcy law office right away to avoid making these errors. We can help you avoid common mistakes made on the bankruptcy means test.

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