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Bankruptcy Means Test in Indiana

INDIANA BANKRUPTCY MEANS TEST

The bankruptcy “Means Test” was created by legislation that went into effect in October of  2005.  The means test in Chapter 7 bankruptcy cases is used to determine a person’s eligibility to file for Chapter 7 by analyzing the debtor’s income over the six calendar month period prior to the filing of the bankruptcy petition.  In a Chapter 13 bankruptcy, the means test is not used for the same purpose; the purpose is to determine the length of the Chapter 13 debt reorganization plan (from 3 to  5 years) and the base amount required to be paid to general unsecured creditors.  The Means Test can be very complicated, and it is advisable to have an experienced bankruptcy attorney to guide you in preparing to file for bankruptcy as to your particular circumstances.

Indiana Bankruptcy Attorney Explains Bankruptcy Means Test

Contact the Law Office of Steven P. Taylor:  Indianapolis Bankruptcy Office (317) 271-1111  Kokomo Bankruptcy Office (765) 868-0807  to get answers to your questions about the Bankruptcy Means Test when filing for Chapter 7 bankruptcyor Chapter 13 bankruptcy.  


    Indiana Bankruptcy Means Test Information Center


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Definition of Bankruptcy Income Terms

The following definitions, as defined in the Bankruptcy Code, will aid in understanding the Means Test:

  • Income – Income can come from any source, including wage earnings, business income, pensions, and unemployment benefits, to name a few. A debtor’s spouse’s income is included in the debtor’s income, even if the spouse is not filing for bankruptcy, except in cases where they are separated or living apart. Additionally, any contributions to household expenses from anyone who is not the debtor are considered income. However, any payments from Social Security are not considered income for purposes of the Means Test.
  • Current Monthly Income - Current monthly income in Indiana is an average of a person’s income from the previous six months.
  • Monthly Median Income – This figure varies by state, and is based on the income per household size. The state’s median is basically the middle point where half the households in the state earn more income and half the households in the state earn less income than the median amount. This amount varies by household size.
  • Monthly Disposable Income - If a debtor’s monthly income is more than Indiana’s monthly median income, then deductions for certain actual and allowable expenses are applied to calculate the debtor’s monthly disposable income. Certain deductions are based on Internal Revenue Service (IRS) standards, while others are based on the debtor’s actual expenses.

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What Is the Bankruptcy Means Test?

The Means Test must be applied in certain cases to determine whether filing for bankruptcy under Chapter 7 would be “abusive”. In other words, a debtor may not be allowed to file under Chapter 7 if the debtor’s monthly disposable income is too high. If the debtor’s “annualized” current monthly income is less than the median income for Indiana State, then the debtor is eligible to file for Chapter 7 bankruptcy. If the debtor’s current monthly income is over the median income for Indiana State, then the debtor’s monthly disposable income, as defined above, must be determined.  Under the federal Bankruptcy Code, there is a rebuttable presumption that filing for Chapter 7 is abusive if the debtor’s total monthly disposable income over a five year period (the debtor’s monthly disposable income multiplied by 60) is more than:

  • $11,725; or
  • 25% of the debtor’s non-priority unsecured debt, as long as the amount is at least $7,025.

Filing under Chapter 7 is not usually an option for debtors who fall into either of the preceding categories. However, because the means test creates a rebuttable presumption, a debtor may be still able to file under Chapter 7 if there are special circumstances shown as to why the debtor should still be able to file under this chapter.

If the debtor cannot overcome the presumption that filing for Chapter 7 is abusive, then the Chapter 7 case will be dismissed. Alternatively, the debtor can convert the case to a case under Chapter 13, if the debtor otherwise qualifies for Chapter 13.


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Median Income in Indiana

In most Chapter 7 cases, it is necessary to compare the debtor’s annualized current monthly income with the state’s median income for the same family size.  The following is the median income in Indianapolis, as of December 13, 2013, based on family size, according to the U.S. Census Bureau:

  • One Person in Household, $41,250
  • Two People in Household, $51,926
  • Three People in Household, $61,021
  • Four People in Household, $71,113
  • For households exceeding four people, add $8,100 for each individual in excess of four

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Means Test Does Not Apply in Certain Chapter 7 Cases

The means test does not apply if:

  • The debtor is a disabled veteran whose indebtedness occurred primarily during a period in which the debtor was on active duty or while performing a homeland defense activity.
  • The debts incurred by the debtor are not primarily consumer debts (i.e. over 50% of the debts are non-consumer related debts such as business debt or taxes).
  • The debtor was a member of the Armed Forces Reserves or National Guard who was on active duty or homeland defense for at least 90 days during the 540 days preceding the bankruptcy filing.

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Bankruptcy Means Test Resources in Indiana

Internal Revenue Service (IRS) – The IRS website has information regarding the standard deductions that are utilized in the bankruptcy means test.

U.S. Trustee Program – This part of the Department of Justice is responsible for overseeing the administration of bankruptcy cases and private trustees. This site has information about the program and the federal bankruptcy system in general.

Chapter 7 of the United States Bankruptcy Code – Title 11 of the United States Code, which is entitled “Bankruptcy,” contains the federal law regarding bankruptcy. The Code governs all bankruptcy cases in the United States. This link is directly to the laws pertaining to Chapter 7 bankruptcy.


Steven P. Taylor, P.C. |Indiana Bankruptcy Means Test Lawyer

Contact the law firm of Steven P. Taylor, P.C. today for a free consultation about your Bankruptcy Means Test questions in Central Indiana. Steven P. Taylor will help you determine if you are eligible to file for Chapter 7 bankruptcy after application of the Means Test. Call (317) 271-1111 to learn more about the bankruptcy Means Test in Indiana.

 

 


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