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Chapter 7 Bankruptcy Means Test in Maryland

Bankruptcy  Attorney in Rockville, Maryland

Are you filing for Chapter 7 bankruptcy but scared of taking the means test? We understand your dilemma. The means test is a complex and crucial step in determining whether you will have an immediate fresh start through Chapter 7 discharge. 

One wrong move in taking the means test can ruin your Chapter 7 bankruptcy chances. But doing it right can also mean a new beginning for you and your family. Before you proceed in filing for Chapter 7 bankruptcy, it’s highly recommended that you consult a Maryland bankruptcy lawyer who is highly specialized in this field. 

Consult with us now and do not risk your chances for immediate debt relief and a fresh beginning!

Why do I need a Bankruptcy Lawyer in Maryland?

Preparing for Chapter 7 bankruptcy means test can be overwhelming and confusing. You have to fill out means test forms which can be tricky. You have to be able to properly identify your gross income, expenses, disposable income, allowed deductions, and a lot more. The process can be daunting. 

However, a trusted and credible Maryland bankruptcy attorney can help ensure that you calculate gross income accurately and you maximize each allowable expense and deduction. Kurland Law Group lawyers’ extensive knowledge and experience in bankruptcy have helped thousands of clients maneuver the complexities and technicalities of the Chapter 7 means test to arrive at a desirable output. 

You need a bankruptcy lawyer who can lead you through the forms and the complicated legal process of the bankruptcy means test. What are you waiting for? Give us a call now!

What is Bankruptcy Means Test?

bankruptcy means test maryland Filing for bankruptcy is a quick way to get debt relief. But the biggest hurdle to being eligible for bankruptcy relief is the means test. The Means Test assesses and measures your income to the Maryland state median income for your household size. 

The Chapter 7 means test aims to identify those individuals filing for bankruptcy but making over the state median income. Individuals with high incomes will be disqualified from wiping out their debt by submitting Chapter 7. They will be kicked out of Chapter 7 and will have to create a repayment plan instead under Chapter 13. 

How Does Chapter 7 Means Test Work?

The Chapter 7 means test works by comparing your average monthly income for the last six months before you submitted your bankruptcy filing against the median income in the state of Maryland. Your expenses together with other living expenses in accordance with the local and national standards will be taken into consideration. The means test will help determine whether you have extra income remaining after deducting the living expenses that you can use to pay a portion of your debts to your creditors.

If your income is below the state median income, you will pass the means test by following a couple of simple steps. On the other hand, if your overall income is greater than the median in Maryland, you will need to complete the remaining portion of the application form that takes into account your living expenses and disposable income in order to determine whether you pass or not. 

What is Included in Your Income Calculation? 

Your income that will be used to calculate your current monthly income includes:

  • Gross salaries
  • Commissions and other bonuses
  • Tips and overtime payments
  • Royalties, interest, and dividends
  • Unemployment compensation
  • Workers’ compensation
  • Annuity payments
  • Net income from your businesses, farms, or profession
  • Retirement and pension income
  • Rental properties income
  • Alimony and child support 
  • State disability insurance payments

If your income is more than your expenses by a specific amount, you will not be able to qualify for Chapter 7 bankruptcy. 

How to Pass Chapter 7 Means Test in Maryland?

Passing the bankruptcy means test will greatly depend on whether your income falls within, below, or above the state of Maryland’s median income level. You have to keep in mind that you need to determine the state median income of a household that has the same size as yours. For instance, if you are a family of six, you will need to look at the median income for a family of six in Maryland. 

Below  vs. Above Maryland State Median Income 

If your average monthly income for the last six months before submitting your bankruptcy case is below the state of Maryland’s median income, you will automatically pass the means test and you become eligible to file for a Chapter 7 bankruptcy. You will not need to fill out the rest of the bankruptcy means test forms

If you have an average income that is above your state’s median income, it does not make you automatically ineligible for Chapter 7. You still have a chance to qualify by completing the rest of the means test forms which would require you to fill in and break down all your expenses in figures. By doing so, the bankruptcy court will be able to identify if you have disposable income. 

Internal Revenue Service (IRS) Standard Expense Figures

You might live in a state where living expenses are higher than others. Or you might be located in a high-profile subdivision or estate which makes your living expenses such as food, clothing, rent, utilities, and gas extremely high. You probably think that it would be an advantage to be living in an expensive environment when detailing your living expenses. But you are incorrect. During the means test, Internal Revenue Service (IRS) standard expenses for local and national will be used as the basis in the calculation, not your actual living expenses. You will not be able to use this as an advantage to lessen your disposable income.

What to Avoid on the Means Test

Because not everyone is eligible to erase their debt in Chapter 7 bankruptcy, it’s important to know what you should avoid while filling up the means test forms. Keep in mind that you need to show the bankruptcy court that you are not capable of repaying your creditors by taking and passing the means test. 

Means test forms can be very long, especially if your income is above the state’s median income. You will need to fill up lengthy and complicated forms. But each form always comes with a set of instructions. You need to read and understand each thoroughly. You can also seek legal advice from an experienced bankruptcy lawyer in Maryland while filling up the forms. Below are the means test forms that you need to complete as accurately as possible. 

  • Form 122A-1 – Chapter 7 Statement of Your Current Monthly Income 
  • Form 122A-1Supp – Statement of Exemption from Presumption of Abuse Under §707(b)(2)
  • Form 122A-2 – Chapter 7 Means Test Calculation 

Failure to Claim Deductions

If you failed to pass the requirement of having a state median income or lower, you can still have a second chance to qualify and pass the means test. This can be done by claiming deductions. 

You will need to subtract allowable deductions from your income in order to determine if you have sufficient disposable income to repay your creditors. You can deduct your actual expense amounts like educational costs, mortgage, car payments and etc including other predetermined expenses. You should be taking advantage of this to lower the remaining income that can be allocated to paying your creditors. 

In claiming deductions, remember that you can’t deduct all expenses that you have. Loan payments and voluntary retirement plan contributions are not deductible. This is where many debtors have mistakes. Get help from a credible bankruptcy attorney in Maryland to assist you. 

What to avoid when claiming deductions is to list any expenses that are not entitled in the means test. The bankruptcy trustee or your creditors will have an opportunity to challenge the exemptions you included. The most common challenges to a debtor’s claim deductions include:

  • Bankruptcy exemption laws do not cover the type of property you wants to protect
  • Property is worth more than the amount you listed in the bankruptcy filing 

Incorrect Income Reporting

What you declare is your income during the six months before your bankruptcy filing will be the basis of the means test. It will determine your eligibility for Chapter 7 depending on which bracket your income will be categorized. An accurate declaration is important. Your last six months’ income will be doubled and compared against the median income in Maryland, with the same-size household. 

Because the means test uses the last six months’ income for calculation, it’s possible to have a different year-to-date income and current income. Be sure to follow strictly the instructions in the form and calculate your income average for the past six months prior to filing all of your reportable income. 

Household Size Miscalculation

The size of your household will play an important role during the means test. If you have a large household size, your expenses are also expected to be higher than those of smaller households. That would in return lessen your disposable income. 

Make sure not to miscalculate your household size because it will impact significantly your qualification for Chapter 7 bankruptcy.

Failure to Apply Marital Adjustment Deduction 

If you are married and decided to submit a bankruptcy case without your spouse, you should still include your spouse’s income in the means test even if you share a household. However, if your spouse makes a high income, you might have difficulty passing the means test. 

On the other hand, you can exclude your non-filing spouse’s income in the means test if her income is not being used to cover your household expenses. You can take advantage of the marital adjustment section in the means test form, which can help lower your income. This marital adjustment has the potential to help you pass the means test. 

Social Security Income Inclusion

Social security benefits that you receive for yourself or on behalf of others are not to be included in the means test. Adding this to your form can potentially lower your income and you’ll have a better chance of qualifying for Chapter 7.

The social security benefits that you receive can be listed and added in Form B 106I – Schedule 1: You Income, which shows the bankruptcy court how much income you expect to receive.   

Income Tax Expenses 

Only the actual tax liability can be deducted on the means test. When calculating your income tax expenses, do not use the amounts withheld from your salary each month. Receiving a large tax refund every year means you are using your withholdings and you are actually overestimating your tax deductions.

What If I Failed to Pass the Means Test?

Failure to pass the means test will not qualify you for Chapter 7 bankruptcy discharge. It would be a good idea to recheck all the information you submitted and the calculations you made. Ensure that you have included all the possible expenses you have and deductions you can claim. Look through all your documentation, bank statements, and bills to make sure you did not leave out anything. Confirm if all information is complete and accurate. 

If your calculations are correct and your income is still above the state median income, then it is best to consult with your Maryland bankruptcy attorney to discuss other options. 

Your first option could be a delay in filing. If you expect any income reduction changes in the next couple of months, it may be beneficial to wait until your income lessens. The bankruptcy court will only look at your last six months’ average salary before filing. If it would make a big difference in lowering your income, wait to file. But if you have properties for foreclosure or facing garnishments, waiting to file is not a good option. 

Another option is to evaluate your eligibility to submit a Chapter 13 bankruptcy which will require you to pay full or a portion of your debts by creating a repayment plan that can take three to five years. 

Means Test in Chapter 13 Bankruptcy 

There is no requirement to pass the means test to qualify for Chapter 13 bankruptcy. Although it plays an important in the calculation of the repayment plan duration. If you are a below-state median income earner, you may be able to qualify for the three-year plan. That would mean paying back less of your debts than a five-year repayment plan. 

Call our Maryland Bankruptcy Attorney Now!

Passing the means test can mean rebuilding your future and living your life anew. It can be difficult at first but it doesn’t mean it’s not feasible. All you need is to be accurate with all your declarations and legal advice from a reliable Maryland bankruptcy lawyer. 

Kurland Law Group isn’t just another bankruptcy law firm. Our commitment is to provide you with a personalized solution to your needs and help you transform your financial future. Speak to us today and let’s shape your future free from debt! 

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