When the Bankruptcy Reform and Consumer Protection act of 2005 was implemented, Congress created a means test required to determine if an individual would qualify for chapter 7 bankruptcy.
At its core, the means test is an analysis of gross income. If your gross income is over a certain amount, then you’re not permitted to file for bankruptcy under Chapter 7.
Passing the Chapter 7 Means Test
We look at your last six months of income proceeding the month you’re filing to determine whether you pass the Chapter 7 means test. There are a few variables that go into determining what your gross income is and your eligibility to file.
For example, you can deduct certain expenses from your gross income, and the number of your dependents will also affect whether you’re eligible to file for Chapter 7.
The US Justice Department has looked at every statistical census area in the United States and determined the cost of living in those areas. That impacts the means test and is thus part of the way eligibility for bankruptcy is determined.
Starting on April 1, 2022, a 1-person household in Washington State could have an annual gross income of up to $74,398. A 2-person household could be as high as $90,292.00, while a 3 and 4-person rises to $104,644 and $118,901 respectively.
Other Factors that Affect Gross Income
If your calculated “median income” is close to or over the amount listed above, that doesn’t automatically make you ineligible for Chapter 7. Experienced bankruptcy lawyers will evaluate other variables that calculate your gross income.
They will first consider whether you made most of your money in the first half of the year. Remember, your median income is not based on what you made last year: it’s based on what you made in the last 6 months.
A bankruptcy attorney will also see where your income originates (VA disability, social security, or other government sources. That income isn’t included in your “median income” for purposes of means testing.
See Whether You Have the Means for Chapter 7
If you have a family of four and the gross income of your household is under $118,000 per year, you will probably qualify to file for bankruptcy under Chapter 7.
We urge you to take legal action by at least consulting with Patrick McBurney and our experienced team. Even if you’re unsure of filing, we can explain more about how it works and other available options to give you a clean financial slate.