Changes to the Means Test

Most people that file for bankruptcy end up filing either Chapter 13, or Chapter 7.  Chapter 13 bankruptcy is referred to as a "reorganization."  It consists of a monthly repayment plan which lasts for 3-5 years.  Once the repayment plan is complete, the debtor gets a discharge and the Chapter 13 in concluded.  However, the situation is very different in Chapter 7.  A Chapter 7 case usually lasts 5-6 months, before the discharge is granted and no repayment plan is required. 

The vast majority of cases filed by Clint W. Smith, P.C., are Chapter 7 cases.  Why?  Chapter 7 is cheaper and easier for the debtor.  Yes, Chapter 13 cases can be helpful and there are some really neat things that can be done in a Chapter 13 that can't be done in a Chapter 7, but Chapter 13 is only right for a specific type of client.

However, not everyone qualifies for Chapter 7.  In order to qualify for Chapter 7, you must pass the "Means Test."  Part of that test includes an analysis of your yearly income.  This analysis is based on the "Arizona Census Median Income", based on household size.  If your income is above, then it becomes harder to qualify for Chapter 7.  If your income is below the average, then most of our clients do not have any issues qualifying for Chapter 7.

Effective November 1, 2011, the Arizona Census Median Income is changing and here is how it looks:

1 Person ($41,385); 2 People ($53,781); 3 People ($56,508); 4 People ($61,267); 5 People ($68,767); 6 People ($76,267); 7 People ($83,767); 8 People ($91,267); Each Additional Person in Household ($7,500)

From the above, if you are a single person making $41,385 or less per year (gross), then you will likely qualify for Chapter 7.  If you have a household of 6 people and you make $76,267 or less per year (gross), the you will likely qualify for Chapter 7, and so on.

If you would like to discuss your situation and how bankruptcy or debt-settlement might affect your situation, please give us a call.  We'd love to see if we can help.