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Denver Lawyer Clark Daniel Dray

Bankruptcy Means Test

Bankruptcy Attorney in Broomfield, Colorado


Dealing with unmanageable debt causes plenty of issues. Creditor calls, overdue payments, and financial difficulties are all part of your daily life. That does not have to be the case. All of these issues can be resolved by filing for bankruptcy.

Our bankruptcy lawyers at The Law Office of Clark Daniel Dray have managed thousands of bankruptcy cases, both Chapter 7 and Chapter 13. We provide specialized bankruptcy and debt settlement services to assist you in overcoming your financial difficulties and start over.

Our Denver bankruptcy attorneys can assist you in getting back on your feet and regaining financial security by filing Chapter 7 or Chapter 13 bankruptcy. Stop worrying about your obligations and start working toward financial stability right now!


Why do I need a Bankruptcy Attorney in Colorado?


Bankruptcy Means Test

Bankruptcy can have long-term consequences. An experienced attorney can explain what you can expect if you file for bankruptcy and what your choices are. If you decide to file for bankruptcy, an attorney can assist you in protecting yourself, your family, your house, and your possessions.

Bankruptcy laws are complicated. Our Colorado bankruptcy lawyers are well aware of Colorado bankruptcy laws and have a lot of experience with them. We can assist you in preparing and completing the necessary papers, and filing for  a Chapter 7 or Chapter 13 bankruptcy 13 case with the court.


What is the Bankruptcy Means Test?


Congress made it far more difficult to qualify for chapter 7 by requiring debtors in Colorado to satisfy the Bankruptcy Means Test, which was implemented under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). As a result of the BAPCPA, more Colorado debtors are being forced into chapter 13, which mandates a 5-year debt payback plan. Congress believed that debtors with discretionary income should be obliged to repay part or all of their unsecured loans regardless of actual financial status.

The Means Test compares your monthly income and allowable spending to the number of household members and state of residency for the six months prior to filing bankruptcy. The US Trustee estimates the Median Family Income for one family of a certain size in Colorado. 

If your monthly income (adjusted for six months) is much less than the Median Family Income upon filing, you will pass the Means Test. However, if your monthly income exceeds Colorado’s Median Family Income, you’ll have to deduct allowable expenses like your mortgage or car payment, payroll deductions (like taxes, medical insurance, life insurance, childcare services, or other retirement contributions or loans), or out-of-pocket health costs. 

You can pass the Bankruptcy Means Test if your allocated expenses are sufficient. In contrast, any chapter 7 filing in which the debtor fails the Means Test will almost certainly be challenged by the U.S. Trustee as raising a Presumption of Abuse (justifying dismissal of the case). If your income exceeds Colorado’s Median Family Income, the same Means Test methodology will be used to calculate the length and amount of your chapter 13 monthly payment plan, as well as the amount of disposable income that will be paid to unsecured creditors. 


Misconception about the Means Test


The Means Test doesn’t use your actual living expenses, which is one issue with the disposable income estimate. Rather, the Bankruptcy Code and the United States Trustee have adopted Internal Revenue Service (IRS) national and local allowance to establish average living costs for housing, food, and car running and ownership costs. (The real living expenses of a bankruptcy debtor almost invariably surpass the IRS allowances given by the Bankruptcy Code.)

There is more terrible news, the Means Test also considers the income and expenses of a non-bankruptcy spouse. Even if the debtor would otherwise pass the Means Test, the income of a non-filing spouse may drive the debtor into chapter 13 unless the spouses declare separate homes if they live apart.

Please keep in mind that a debtor in Colorado with a family income below the median might prefer to file for chapter 13 if they pass the Means Test. The debtor may need to stop a foreclosure sale and progressively cure mortgage arrears, remove a second mortgage lien (if the home’s value is upside down due to the first mortgage only), and own non-exempt equity in a home or business that would otherwise be liquidated by a chapter 7 trustee, or have a priority tax debt payable to the IRS or Colorado Department of Revenue that can be repaid through chapter 13 plan without accruing interest or penalties.

Other debtors with incomes below the median family income may have to file for chapter 13 since they are disqualified for chapter 7 due to a prior chapter 7 filing within the preceding eight years.


Debtors with above-average income


These debtors must then compute their income deductions based on IRS national and local guidelines, as well as “other necessary expenses.” The assumption of misuse does not arise if total permissible deductions exceed current monthly income. 

Finally, the assumption of abuse does not emerge if these deductions don’t exceed present monthly income, but the difference given to unsecured creditors over 60 months doesn’t exceed 25% of their unsecured debts.


Non-consumer debtors


Individual debtors with largely non-consumer debt, such as business debt, are exempt from the means test. Debt incurred for private, family, or household needs is referred to as consumer debt. Tax debts, such as personal income taxes, will not be considered consumer debts by the majority of courts. The courts have interpreted “primarily” to mean “more than half.”

The Bankruptcy Code does not define what constitutes business debt, but most courts consider the debt’s intention at the time it was incurred, rather than the nature of the debt at the moment of bankruptcy filing. 

Consumer debts include loans used to purchase a debtor’s home and automobiles. Because the debt was originally incurred for personal use rather than investment, a second vacation home mortgage still qualifies as a consumer debt, even if it is later converted into a rental.


Is it necessary for me to finish the means test?


The means test is not required to be completed if you are applying for Chapter 13 bankruptcy. You must, however, complete a nearly identical form, which will decide how much you should pay in a Chapter 13 plan.

If you wish to file for Chapter 7 bankruptcy, you should first fill out Form 22A-1 to calculate your “current monthly income” (CMI), which is based on your average salary over the previous six months. You’ll need to fill out the rest of the form based on that number.

You do not need to fill out Form 22A-2 if your CMI is less than the median income for a household your size. 

If your CMI is greater than the median for a household your size, you must fill out Form 22A-2 to figure out how much money you have each month (that is, income minus expenses). The outcome of that calculation will decide if you qualify for Chapter 7 bankruptcy.


Is it still possible to be barred from filing bankruptcy if I pass the means test?


Yes, you could still be denied a Chapter 7 bankruptcy filing. Passing the means test removes one barrier: you are no longer “presumed” to be “abusing” the bankruptcy system. It is a necessary first step, and most individuals stop there. They’re clear to file.

A bankruptcy judge may, however, declare that the case should be dismissed due to the “totality of the circumstances” in some scenarios.


The Totality of Circumstances Test


The “substantial abuse” provision from before the 2005 Act is still in place, however it’s now known as the “totality of circumstances” test. This standard clearly applies to Chapter 7 consumer debtors with a high income. Individuals and married people with higher-than-average W-2 salary income are more likely to be dismissed from Chapter 7 due to abuse.

Debtors who claim they are exempted from the means test requirement must, however, show that more than half of their obligations are non-consumer debts. A documented statement of overall business debts against total consumer obligations is not required in Chapter 7 bankruptcy proceedings. Credit card debts, second mortgages, and home equity lines of credit may be used for business purposes entirely or partially.



Can a judge allow me to file even if I fail the Means Test?


Yes, even if you fail the means test, a court may allow you to file for Chapter 7 bankruptcy if you can establish “special circumstances.”

Job loss or income decrease, a major medical condition, or extremely expensive childcare expenses are all instances of probable “special circumstances.” You must be able to show proof of your spending, as well as proof that your expenditures are reasonable and also that you have no other options.


Call our Bankruptcy Attorneys Now!


The actual determination of whether or not debtors are excluded from the means test is always open to appeal by the United States Trustee’s attorneys and accountants. The Law Office of Clark Daniel Dray has a lot of experience defending people who are filing for bankruptcy.

From start to finish, one attorney manages our clients’ cases. This means your lawyer is easy to reach, available to answer your questions, and knowledgeable about your situation and the state of your case. We can give the customized service and attention to detail that are critical to a successful conclusion by working with a small number of clients on a concentrated and connected range of matters.

Because we recognize that no two families are the identical, when you call The Law Office of Clark Daniel Dray, you can expect to receive personalized advice based on the specifics of your situation. We assist people discover relief from debt and peace of mind in knowing that they have a plan for the future by working closely with them to determine the best strategy for achieving their objectives.

Get in touch with our Colorado attorneys today and we can also help you with your Estate Planning concerns.

Denver Lawyer Clark Daniel Dray

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