When filing for bankruptcy in Rhode Island, you may have to take the bankruptcy means test.
Depending on which type of bankruptcy you are planning on filing for, the means test does a few different things. For Chapter 7, the means test determines whether or not you are eligible to apply. If you make over a certain amount, determined by Rhode Island, you will not be allowed to file for Chapter 7 bankruptcy.
With Chapter 13 bankruptcy, the means test determines if you have enough monthly disposable income to make repayments each month to your unsecured creditors. It also can help determine if you are eligible for a 3 year or 5-year plan. With Chapter 13, there is not a maximum amount that you can make.
The means test in Rhode Island looks at a few things. First, it considers what your monthly income is. This income can come from a variety of places, though there are a few forms of income that are protected. We will cover that later. Next, your monthly expenses are considered. The test looks at your cost of living expenses, as well as any other required monthly payments. Finally, the means test looks at the amount of debt an individual has. Considering all these things, the means test determines whether or not a person is able to make monthly payments into a repayment plan, should they be approved for bankruptcy.
If you live in Rhode Island and are planning on filing for Chapter 7 or 13 bankruptcy, be sure to continue reading to see exactly what to expect when completing your means test.
Rhode Island Means Test Calculator
If you are unsure as to whether or not you may qualify for a Chapter 7 or 13 bankruptcy, feel free to take our free bankruptcy means test calculator. The calculator was designed with you in mind and is based on the bankruptcy means test forms in Rhode Island! We want to make sure you understand your eligibility, along with the other options that may be available to you based on your individual situation.
Once you take this test, you will be able to see what forms of bankruptcy you may be eligible for, and compare may be the best option for you.
Rhode Island Median Income Limits
The bankruptcy means test income limits in Rhode Island are updated every 6 months or so. The current numbers below are for cases filed on or after May, 15, 2021 (source). If you have a household size that is bigger than the maximum number below, you would just add $9,000 for each additional household member.
Bankruptcy Means Test Explanation
There are a couple of things we want to be clear about when we talk about a means test. As mentioned earlier, the means test is a document you will fill out at the beginning of your bankruptcy filing process that will determine your eligibility and repayment plan for bankruptcy. To fill out this form, you will need to report a few things. The first is your income. Here are some things to keep in mind when reporting your income on your Rhode Island bankruptcy means test document:
- Even if your spouse is not filing with you, you will need to report their income. The means test considers the income of the entire household, not just the individual who is filing. There are some exceptions, especially if you are legally separated from your spouse, but still living in the same residence.
- Your household income is compared to the mean monthly income of households in Rhode Island. This then determines what your eligibility is for bankruptcy and what repayment plan you may be looking at.
- Some forms of income, namely any Social Security or other retirement income, do not count as income on your means test. Make sure you understand what you do not have to disclose to have the best chance of approval.
- If you have an unstable or variable monthly income, the average of your past six months of income is used. To find this, you would add each month of income for the past six months together, and then divide the sum by 6. The number you end up with is what you would report as your average monthly income.
Chapter 13 Bankruptcy Means Test and Debt Limits
In order to be able to file for Chapter 13 bankruptcy, there are a few income limits an individual has to meet. First, the individual has to have less than $419,275 of unsecured debt. This is a part of the Chapter 13 debt limit. Unsecured debt is any form of debt that is not backed by an asset that can be held as collateral. This means that, if you were unable to repay your unsecured debt, there wouldn’t be anything that the creditor could repossess to recoup the lost payments. Unsecured debt includes things like credit card debt, medical bills, utility bills, and more.
Next, an individual cannot have over $1,257,850 in secured debt. Secured debt is debt that is backed by collateral. This can include things like home mortgages, car loans, and other loans where something can be repossessed to recoup the cost of nonpayment.
Debt limits are not the only requirements that have to be met when filing for Chapter 13 bankruptcy. There are other requirements, such as:
- Only an individual can apply for Chapter 7 & 13 bankruptcy. Businesses are not eligible for these.
- The individual cannot have had a bankruptcy case dismissed within the previous 180 days. There are exceptions if there are emergencies or an error caused your dismissal. The court decides on those cases individually.
- The individual cannot have had a Chapter 13 bankruptcy successfully completed within the past two years (four years if it was a Chapter 7 bankruptcy). This means, if you went through the bankruptcy process successfully and had some of your debts discharged within this timeframe, you are not eligible and will have to wait for the time period to pass.
- The individual has taken the required credit counseling courses. When filing for Chapter 7 or 13 bankruptcy, it is required that you complete two credit education courses with a court approved debt counselor. Failing to do so would prevent you from eligibility.
- All tax returns for the previous four years must have been filed by the individual.
- For Chapter 13 bankruptcy, you have enough disposable income to make a monthly repayment to the bankruptcy trustee who will then distribute the payment amongst the various creditors and other fees. If you do not have enough disposable income, the court may decline your case and recommend Chapter 7 bankruptcy instead.
Are There Any Details Of The Bankruptcy Means Test Specific to Rhode Island?
The means test itself does not change from state to state. However, the test compares your average monthly income to that of the state’s household average monthly income. Because of this, where you live will change what average income your income will be compared to.
For example, the means test income levels would not be different between Providence and Cranston, but that income limit may be different between Rhode Island and California.
Options If You Fail the Bankruptcy Means Test in Rhode Island
If you fail the means test for bankruptcy, it simply means that you are not eligible for that specific type of bankruptcy. With Chapter 13, failing the means test means you do not have enough disposable income to make a payment at the end of each month to the bankruptcy trustee. Because of this, the court cannot grant you a Chapter 13 bankruptcy, which may require sizeable monthly payments. If you fail the means test for Chapter 7 bankruptcy, then you make too much compared to the requirements. Regardless of the reason why you failed the means test, you have many other options to consider.
A Different Form of Bankruptcy:
If you were denied for Chapter 7 bankruptcy, you may want to consider filing for Chapter 13. It’s likely you were denied Chapter 7 because you make too much money. Luckily, Chapter 13 bankruptcies rely on an individual making more than they need to help pay off their debts. If you were denied Chapter 13, it’s likely that you didn’t make enough money to afford monthly payments at the end of each month. Because of this, you may qualify for a Chapter 7 bankruptcy. Basically, if you were denied for one form of bankruptcy, see if you are eligible for the other.
Debt settlement works in a variety of ways. Basically, either you or a company on your behalf negotiates with your creditors until they agree to a lower debt balance that you can then pay off, leaving a portion of your debt forgiven. An example of this may look like the following: Say you owe $30,000 in debt. You may approach your creditor and negotiate the amount down to $15,000. Often, especially if you are working with a debt settlement company, you will have created an account that holds a sum of money that you are willing to pay immediately. If the creditors agree, then you will have $15,000 of forgiven debt once the remaining sum is paid off.
There are some potential negatives of this option, namely that you tend to have to miss a few payments in order for your creditors to be willing to negotiate. Not only does this put you at risk of being sued by the creditor, but it also impacts your credit score for up to seven years.
You could also look into considering a debt management program. Debt management programs are also known as credit counseling. When you are working with a debt management company, you will have to report your entire financial situation to the entity. They will then devise a plan that best helps you get out of debt as efficiently as possible. They are also able to help negotiate lower interest rates on any loans or other lines of debt you may already have. This can take anywhere from 36-60 months. The downside to this option is that you still have to pay off everything you owe. The good news is, it won’t hurt your credit as much as some of the other options may.
Overall, the means test is just a way to see what forms of debt relief and bankruptcy you may qualify for. Using the means test can help you better understand your financial situation and whether or not bankruptcy is right for you. If you have any questions or wanted to talk more in-depth, feel free to reach out at (408) 471-9125. We’d love to talk through your debt relief options with you.