The Means Test

The Means Test in Arizona

Are You Eligible for Chapter 7 Bankruptcy?

Bankruptcy can be a highly efficient method of finding relief from seemingly unsurmountable debt. However, as part of an effort to discourage abuse of the system, the federal government has imposed regulations on eligibility for certain forms of bankruptcy. For example, in order to file for Chapter 7, which allows debtors to wipe out certain debts altogether, individuals must pass a means test.

At Leonard V. Sominsky, ESQ., PC, our Phoenix bankruptcy lawyers want to help you determine your eligibility for a clean slate. Leonard Sominsky is dedicated to helping all of our clients find debt relief with high-quality legal counsel at affordable rates. Mr. Sominsky has personally helped over 1,000 people in Arizona over his career. He has a comprehensive knowledge of bankruptcy rules and regulations, so you can feel confident knowing that your case is in good hands.

Qualifying for Chapter 7 Bankruptcy

In order to be eligible for Chapter 7 bankruptcy, you must pass the means test, which is designed to ensure that the system is only used by individuals who realistically cannot afford to pay off their debts. Individuals who do not pass the means test may file for Chapter 13 bankruptcy to repay a portion of their debts over time, but are not eligible for the clean-slate option that Chapter 7 affords.

There are three scenarios in which you would not have to pass a means test:

  • You are a disabled veteran and incurred debts while on active duty
  • You are a member of the military reserve or National Guard
  • More than half of your debts are non-consumer or incurred through a business

What Is the Means Test?

The means test is a formula based on the median income in Arizona to determine whether or not you have funds available for debt repayment. If your monthly income is less than the median, you automatically qualify for Chapter 7 bankruptcy and no further calculations are required. If your monthly income is greater than the median, you will need to calculate your expenses to determine your amount of "disposable income." The calculations can be complicated to complete, but there are options for online calculators that can help you through the process.

You will need to calculate your total income (wages, spousal support, etc.) minus:

  • Taxes according to your marital status, dependents, and deductions
  • Daily household expenses for food, supplies, clothing, etc.
  • Healthcare costs for you and members of your household
  • Housing and utilities including rent and mortgage
  • Transportation expenses including gas or public transportation
  • Vehicle payments whether owned or leased
  • All insurance costs including life, healthcare, disability, etc.
  • Any court ordered payments such as child or spousal support
  • Childcare costs for non-educational childcare
  • Miscellaneous expenses for education, energy, protection, etc.

The number you are left with is your disposable income.

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