One of the most controversial and complicated additions to the new bankruptcy law is the requirement that every debtor complete a bankruptcy means test before filing bankruptcy. The bankruptcy means test is a complicated mathematical calculation to determine what type of bankruptcy a debtor must file.
You must enter income and expense information onto the appropriate state bankruptcy means test form and then make calculations using the entered information. Debtors must provide the calculation and results of the bankruptcy means test to the bankruptcy court as a part of the debtor?s schedule of current income and expenditures. The two main variables for the bankruptcy means test calculations are: Median State Income Figures as published by the U.S. Census Bureau and the IRS National Standards for Allowable Living Expenses.
You will fail the means test and be denied bankruptcy if you make too much money for your particular state. As an alternative to bankruptcy, you should talk to a mortgage professional about a cash-out refinance loan that could provide you some relief.
If you cannot pass the means test, you cannot file Chapter 7 bankruptcy, which erases all of your debts. You can still file Chapter 13 bankruptcy, which sets a plan to repay sometimes all, but usually only part of your debt. Repayment is made over 3 to 5 years.
One purpose of the means test is to show the court you deserve to file bankruptcy because you really cannot pay the debt. When considering a bankruptcy its important to work with both an attorney and a mortgage professional. The attorney can guide you and direct you with important decisions such as the means test. The mortgage professional can work with you as you go through BK and help you re-establish your debt. This can make homeownership or refinancing simpler then if you walk thru it alone.
