Can I pass the means test if I just found a job?

You can still pass the Chapter 7 bankruptcy means test if you recently obtained employment.

Question: I have been unemployed for the last two years and had to incur some debts to pay my living expenses. I just found a job but I can’t afford to pay back my debts. Can I still pass the Chapter 7 bankruptcy means test?

Answer: In general, the most important component of the Chapter 7 means test is your income. But if you recently found a job, you may still be able to pass the means test. In most cases, whether or not you will pass the means test depends on:

  • when you started working, and
  • the amount of your income.

How Does the Chapter 7 Means Test Work?

To determine whether or not you qualify for Chapter 7 bankruptcy, the means test takes into account the following:

  • your income
  • the median income for a household of the same size in your state
  • the amounts you actually spend for some types of expenses, and
  • local and national standards for other types of living expenses.

But in most cases, your income is the most important factor. If your income is below your state’s median income for a same size household, you automatically pass (without taking into account any expense figures). This means that having a low income is the easiest way to pass the means test. (Learn more about how the Chapter 7 means test works.)

How Does the Means Test Calculate Your Income?

The means test averages the total gross income you receive from all sources (except Social Security benefits and payments for being a victim of a war crime, crime against humanity, or terrorism) during the six calendar months preceding your bankruptcy filing (ending on the last day of the month before your filing). The resulting average monthly income is referred to as your current monthly income (CMI) on the means test. (Learn more about how to calculate your CMI on the means test.)

After calculating your CMI, you compare it against your state’s median income for a same size household. If your income is less than the state median, you pass automatically. If your income is more than the state median, you must complete the entire form and take your expenses into account to determine if you pass.

What Happens if I Just Found a Job?

If you were previously unemployed but recently found a job, the means test will only take into account the income you earned from the job during the six months before your bankruptcy filing. Keep in mind that you still have to include all other types of income you received during those six months (such as unemployment benefits) on the means test. But if you have been working for less than six months, your means test CMI will likely be lower than your current monthly salary.

Example: Kate just found a job after being unemployed for a year. She started her new job on April 1st and earns $5,000 a month. Until she started her job, Kate received unemployment benefits in the amount of $1,000 per month. If Kate wants to file for bankruptcy in July, she must include all income she received from January 1st through June 30th on her means test. But because Kate didn’t start her job until April 1st, her CMI on the means test will be $3,000 ($15,000 in wages for three months plus $3,000 in prior unemployment benefits divided by six), not her current income of $5,000. This means that it will likely be easier for her to pass the means test if she files in July rather than in August or later.

You Must Disclose Your Current Income on Schedule I

In most cases, if you pass the means test you will qualify for Chapter 7 bankruptcy. But bankruptcy courts also consider the totality of your circumstances when determining whether or not you should be allowed to file for Chapter 7 bankruptcy.

When you file for bankruptcy, you must disclose your current income on Schedule I and your current expenses on Schedule J of your bankruptcy paperwork. If your current income and expenses show a significant amount of disposable income in your budget, the court may still decide that you should not be eligible to file a Chapter 7.

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