Think of the bankruptcy means test as the filter through which all petitioners in bankruptcy in Massachusetts who seek to have their debt eliminated must pass. The bottom line with respect to the means test is that if you earn too much money over the past six month period prior to filing for Chapter 7 bankruptcy, then your income and expenses will have to be examined a bit closer to determine if you qualify for Chapter 7 bankruptcy.
The Median Income for Massachusetts Bankruptcy Filers (based on 2021 results)
If you live in Massachusetts and are looking to file for Chapter 7 bankruptcy and will be filing on or after May 15, 2021 then for a single-earner household if you earned under $5,975, or $35,854 over that six-month period, then you would be most likely able to file for Chapter 7 bankruptcy – allowing most if not all of your debt to be discharged in bankruptcy.
The numbers change as the household size increases, as follows:
2-person household = $7,669.5 monthly or $46,017 for the six-months prior to filing bankruptcy
3-person household = $9,3445 monthly or $56,073 for the six-months prior to filing for bankruptcy
4-person household = $11,836 monthly or $71,020 for the six-month period prior to filing for bankruptcy
For households greater than 4, the monthly amount increase by a certain dollar amount per person.
Fluctuating Income?
The point of the means test in bankruptcy is to develop of a method of reflecting income that considers any changes in the person’s work or financial life. For example, if you have recently lost your job, the means test will reflect that because the total income in the 6-months prior to filing will be much less than it would be if your job had been ongoing for those 6-months. Conversely, if you received a promotion within the past month prior to filing the six-month calculation will cover that increase in monthly income. The result is a calculation of income that is fair, as it considers the real financial circumstance of the debtor.
What Happens if I am Below the Median Income in Massachusetts?
If your median income falls below the median income in Massachusetts used for the means test in Chapter 7 bankruptcy (which is constantly recalculated by the way – so the numbers used in this article will change at least annually), you will most likely be able to file for Chapter 7 bankruptcy in Massachusetts. Please consult an experienced bankruptcy attorney to find out if Chapter 7 is right for you based upon your specific circumstances.
What Happens if I am Above the Median Income in Massachusetts?
If you are lucky enough, or unlucky enough, depending upon your perspective, to earn more than the median income in Massachusetts as used for means test calculations in Chapter 7 bankruptcy, then you will have to calculate your disposable income. A bankruptcy attorney experienced in filing for bankruptcy in Massachusetts can assist you in determining your disposable income.
The calculations used in determining disposable income are complex, with some figures used for this calculation based upon IRS standard allowances, others for actual expenses. The bottom line in calculating disposable income for the means test is to determine if after your allowable expenses (allowable for bankruptcy purposes), you are considered within an acceptable range of income as being able to file for Chapter 7 bankruptcy.
What Happens if After Deducting Expenses I Still Don’t Qualify for Chapter 7 Bankruptcy?
In most cases, if you do not pass the filter put in place to screen out people with above average incomes for Massachusetts or after considering the amount of disposable income available to you after certain calculations, you will likely not be able to file for Chapter 7 bankruptcy in Massachusetts. Chapter 13 bankruptcy then becomes the next available option for most bankruptcy filers in Massachusetts.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in the fact that in Chapter 13 you will enter into a repayment plan through which you will be required to pay some of the debt that you owe. After the time period (usually 3-5 years) or repayment is over, assuming that you make all required payments during that repayment period, your debts will be discharged.
What if I Don’t Want to Use the Repayment Plan Option of Chapter 13?
The legislature has set up the bankruptcy system to create relief for United States citizens from their debt when debt loads become overwhelming for any number of reasons. The good news is that in most cases, the court doesn’t really care why you are filing for bankruptcy. However, fraudulent or otherwise criminal activity will raise red flags and can result in a whole host of problems for bankruptcy petitioners who do not pay attention to the rules. But, in general, the Bankruptcy Court recognizes that its role is to assist people in getting out from under their debt.
Prior to 2005, the rules which governed the types of bankruptcy that were available to bankruptcy petitioners were far more relaxed. But, due to abuse of the bankruptcy system, the legislature determined that it should impose a way to make filing for Chapter 7 (the liquidation chapter) a bit more challenging. The solution that the legislature arrived at was to ensure that people without large amounts of disposable income would have access to relief from debt, while those with high amounts of disposable income would likely be forced into the repayment plan offered under Chapter 13 bankruptcy.
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