The Arizona Bankruptcy Means Test
In order to file a Chapter 7 bankruptcy you must qualify. Qualifying for chapter 7 bankruptcy requires looking at your median income first. If your median income for your family is higher than what is allowed, then you must pass the Arizona means test in order to even file a chapter 7 bankruptcy. The good news is that if your income is below the Arizona median for your household size you are exempt from the Arizona means test and may immediately file a Chapter 7 bankruptcy.
The means test calculation is really just a tool used by the new bankruptcy laws to determine if you can pay back a portion of your unsecured debts through a Chapter 13 bankruptcy.
Arizona Means Test Exemptions
There is some great news for some of us out there that completely removes the requirement of even doing the means test! For example, if your debts are not primarily consumer debts then you are exempt from the means test. So for example, if you are a business owner and your debts are primarily business debts then you are exempt form having to pass the means test.
Another great exemption is for those who are disabled veterans AND your debt was incurred primarily during active duty or while performing a homeland defense activity.
It is important to speak with a qualified Arizona bankruptcy lawyer to find out how the means test applies to you and whether or not an exemption can be used in your chapter 7 bankruptcy.
So What is the Arizona Median Income?
Simply put, each county has a median income figure based on your family size. If your currently monthly household income is less than the Arizona median income for a household of your size, in your county, then there is a presumption that you pass the means test and are eligible to file a Chapter 7 bankruptcy.
Here is how your average (or median) household income is calculated: Take all of your monthly income over the last six calendar months and average it out. You either over or under. You can check below to see the updated Arizona Median Income numbers. If you are over the median income limit then you must pass the means test. If you are under the limit then you don’t have to pass the means test. However, if you are over the median income limit and your income has declined over the last six months, then hopefully your bankruptcy lawyer told you how waiting one or more months might bring your income under the median level for Arizona. Strategy as to when to file and when wait can make a HUGE difference in your eligibility to file chapter 7 bankruptcy. The final calculation is made by taking your average monthly income and multiplying it by 12 to determine your annual income for the purpose of Arizona median income test. Check out the current and updated annual means test median income figures below for Gilbert Arizona, Maricopa County:
|HH Size||Monthly Income||6 Mo. Total||Annual Income|
*Chart is adapted from here.
Arizona Bankruptcy Means Test
After reviewing the chart above to see where your average income is, then you must pass the means test only if your average income for your household is greater than the average listed here. If your income is over the Arizona median income for a household your size then you must complete the means test by calculating your income and your allowed expenses. Yep, only the “allowed expenses” can be calculated. A classic example is a grocery bill of $4,000 per month for a family of 3. There is no way that groceries should cost a family that much. The court has guidelines as to what categories of expenses are basic and necessary as well as amounts which should be followed. Like any other law, there area always exceptions to this and you definitely need to speak with one of our qualified Arizona bankruptcy lawyers to find out if your family is fully using the allowed expenses appropriately.
You can check out the means test calculator right here and give it a shot to see if you qualify for a chapter 7 bankruptcy. **HUGE WARNING- like any math calculation, if you put in wrong information or inaccurate information then you will get wrong and inaccurate answers. It is always best to let one our amazing Arizona bankruptcy lawyers do this calculation for you.
In order to get as accurate as possible you will need to gather up some important documents. These include almost all of sources of income you may have including, but not limited to, business income, rental income, interested and dividends, pensions and retirements plans, amounts paid by others for your household expenses, and unemployment income.
The basic gist is that you can qualify for your chapter 7 bankruptcy by passing the Arizona bankruptcy means test. This is what it looks like to pass: Subtract all of your allowed expenses for Arizona from your income. This amount of income is used to determine whether or not you can file a chapter 7 bankruptcy right now, or whether you have too much left over income and therefore must file a chapter 13 bankruptcy. A chapter 13 bankruptcy is where you take the left over income and pay it back to your creditors for pennies on the dollar over 60 months.
The amount of left over income required to force you into a chapter 13 is very case specific depending on your family size and special circumstances. Contact us today and we will help figure out whether or not you qualify for chapter 7 bankruptcy through the Arizona means test.