Chapter 7 Means Test Explanation
To provide background on the calculator above, we'll explain the use of the means test in the context of bankruptcy. It is an income test that looks at your average monthly income and then multiplies it by twelve to get your average annual income. This annual income is then compared to the median income in Washington to see if you qualify for Chapter 7 bankruptcy. Here are some additional details:
- The means test looks at your whole household income, even if your spouse ain't filing with you (unless you are legally separated).
- You will fill in the average monthly income you got from all sources in the six months before you file for bankruptcy. You will then add the income for those six months and divide it by six to determine your average yearly income.
- Don't include the same income more than once. For example, if you and your spouse own the same rental property, just put the income from that property in one column.
Washington Chapter 7 Bankruptcy Income Limit
Washington Chapter 7 median income limits for various household sizes are here. To qualify for Chapter 7 bankruptcy, you want your household income to be below the figures shown below.
| # of People | Annual Income |
|---|
| 1 | $86,558 |
| 2 | $100,800 |
| 3 | $118,442 |
| 4 | $139,828 |
| 5 | $149,728 |
| 6 | $159,628 |
| 7 | $169,528 |
| 8 | $179,428 |
| 9 | $189,328 |
One thing to remember is that you may be able to add $9,900 for each additional family member.
What Is Considered Income?
So far, we've gone through the bankruptcy means test and the different income thresholds. We will now detail what "counts" as income and what exceptions may exist. Below, we'll list all the types of income that will be included in the bankruptcy above means test.
- Salaried income: The amount you get paid each month
- Spousal income: Your spouse's income is subject to challenge if you're in a joint case or aren't officially separated
- Hourly and overtime pay: You can deduct any overtime you work
- Net Rental Income: Any money you make from renting out real estate is included
- Washington government income: Your state payments are included on this list if you get any
- Alimony and child support
- Royalties, Interest, and Dividends: funds from investments and entrepreneurial ventures
- Retirement and Pension Income
- Net business income: The money you make from your firm is included if you are the owner and operator
- Payments for annuities
- Compensation for unemployment
- Benefits from Worker's Compensation
What Is Considered In Household Size?
Another question that often pops up is how household size is determined. In bankruptcy, household size is defined as all individuals financially connected within a single dwelling. This includes immediate family, dependents, and those who rely on or contribute to the household's resources.
Washington Above Median Bankruptcy Means Test
If you used the bankruptcy means test calculator and did not qualify or determined that your household income is higher than the median through our summary above, there is still a possibility for you to qualify. In this case, you will have to use other means test forms. The first is called the "Statement of Exemption from Presumption of Abuse Under §707(b)(2)." It helps determine if you're exempt from the presumption of abuse. The second form is the "Chapter 7 Means Test Calculation." This allows you to deduct your allowable monthly expenses from your current monthly income (CMI) to determine your disposable income. The costs considered are a mix of national and Washington expenses.
Furthermore, you might still qualify for a Chapter 7 bankruptcy if your disposable income falls below a certain amount. That said, you can take the Washington Chapter 7 Bankruptcy Calculator below to see whether you may qualify for the initial part of the means test.
Allowable deductible expenses
While on the subject of deductible expenses, we would also like to outline what these might include. They are the actual expenses that you can deduct on the second part of the bankruptcy means test, such as mandatory employment deductions (think union dues, retirement plans, and uniforms), health and disability insurance premiums, income taxes, child care expenses, term life insurance premiums, secured debt payments for your car and home, alimony and child support payments, and charitable contributions.
You can also deduct other expenses for exceptional circumstances. The amounts allowed for these expenses depend on the number of individuals in your household. You can check out the current national standards here to find out the maximum amounts. These expenses include housekeeping supplies, clothing, food, personal care services and products, housing and utility expenses, transportation expenses, and out-of-pocket healthcare expenses.
If you have any other questions or need further guidance, contacting a local bankruptcy attorney in Washington may be a good idea. They may be able to provide a free evaluation and help you navigate this process.
What Happens If You Fail the Bankruptcy Means Test?
You may also want to consider alternative options to help manage your debt if you do not pass the bankruptcy means test. One route is filing for Chapter 13 bankruptcy. This type of bankruptcy allows you to create a repayment plan to pay off your debts over three to five years.
Other alternatives like debt settlement, management, or payoff planning may also help you regain control of your financial situation. We've written brief outlines for each option below.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy in Washington is a wage earner's plan. You'll often pay back a chunk of your unsecured debts through a payment plan. The good news is you can usually keep your assets. There's no income qualification as long as you stay under the debt limits, and it will only show up on your credit report for seven years instead of the usual 10. The length of the payment plan can vary, but a typical timeframe is between 36 to 60 months.
Some individuals prefer Chapter 13 over Chapter 7 bankruptcy if they have more equity than what's allowed under the Washington bankruptcy exemption; Chapter 13 might be the way to go.
Debt Settlement
Debt settlement is when you or a company negotiate with your creditors to reduce the amount of debt you owe. These programs usually come with a payment plan that lasts anywhere from 12 to 60 months. However, it's essential to remember that not all debt settlement companies are created equal. Some can charge you more than 25% of the debt you enroll in their program.
If you want to understand the intricacies of debt settlement programs, you can check out the Consumer Finance Protection Bureau. They have all the up-to-date information you'll need.
Debt Management
Debt management, or credit counseling, as some folks call it, is when a company negotiates with your creditors to lower the interest rate on your debt. These companies usually focus on working with credit cards, so they may be unable to lend a hand with unsecured personal loans. Once enrolled, you make regular payments to the debt management company, and they distribute the money to your creditors on your behalf. This payment plan typically lasts between 36 and 60 months.
If you have a lot of high-interest credit card debt, this option may reduce your interest rate by roughly 10% to 20%. This will help you pay off your bills faster and may ultimately save you between 30-50% of what you currently owe. Finally, it's essential to think about your situation and select the financial option that makes the most sense.
Summary
Although navigating Washington's Chapter 7 bankruptcy means test and income limit may seem complicated, doing so is an essential first step toward obtaining financial relief. Many choose Chapter 7 despite its complexity because it is less expensive than other debt-relief options. The means test compares your household's income to the income limit in Washington while considering several exclusions.
If your income is higher than the threshold, don't give up. Being eligible for Chapter 7 bankruptcy also considers your expenses and deductions. Carefully consider these parts of the means test so you don't accidentally consider yourself ineligible. Our calculator will also help give you a more accurate picture of whether or not you may be qualified.
There are other options to consider, like debt management, debt settlement, or Chapter 13 bankruptcy. Regardless of the means test results, each option offers a unique set of factors to consider and possible solutions, which means there is always a way forward.
