To go bankrupt is unfortunate, but it may be the only remaining option if you want to get some debt relief. The good thing is the bankruptcy protection from the automatic stay the bankruptcy process bestows affords you some peace as you try to get out of debt. After bankruptcy, you can start over armed with tools for better debt management from the experience and from your session with a credit counselor.
There are different types of bankruptcy. Chapter 7 is a common choice for those who want to file for personal bankruptcy. Before you file bankruptcy under Chapter 7 in the bankruptcy code, first verify that you pass the Arizona bankruptcy means test. This qualifying tool only applies to bankruptcy filers who are from a higher income bracket. This means that those with an income below the Arizona median for their household size are exempt from the test and may proceed with their bankruptcy filing under Chapter 7.
Those with an income higher than the median will have to do the means test calculation to figure out if they may be able to pay back part of their unsecured debts under bankruptcy Chapter 13.
Who Is Exempt from the Means Test?
Those whose debts are not primarily consumer debts are exempt from the means test. Disabled veterans who incurred their debts mostly during active duty or while involved in homeland defense are also exemptions.
What Is the Arizona Median Income?
The presumption is that those whose current monthly household income is below the Arizona median income for the size of their household already pass the means test and can file for bankruptcy under Chapter 7.
In order to get the average household income, the monthly income over the last six months is averaged. Those who usually go over the median income limit but have experienced a recent decline in earnings should wait another month or so to see if their income would end up below the Arizona median level. To determine the annual income for the Arizona median income test, multiply your average monthly income by 12.
Here is the list of median income based on the number of household members:
1 – $41,993.00
2 – $55,022.00
3 – $56,503.00
4 – $64,604.00
5 – $72,704.00
6 – $80,804.00
7 – $88,904.00
8 – $97,004.00
9 – $105,104.00
10 – $113,204.00
How Does the Means Test Work?
Those with an income higher than the Arizona median income for their household size need to complete the means test by calculating their income and expenses.
Some of the details needed in this calculation regarding current monthly income include all possible income sources such as business, rental, interests, and dividends, retirement plans and pensions, contributions from others to pay for household expenses, as well as unemployment.
Meanwhile, information on expenses is derived from Arizona, national, and local standards and averages are based on data from the Internal Revenue Service and the Census Bureau. Some of the allowed inclusions are financial obligations as well as health care expenses.
Once all the information is collected, the allowed expenses are subtracted from the income to figure out the amount of available income that the bankruptcy law says may be used to pay back unsecured debts from creditors within a Chapter 13 payment plan.
A total monthly income of $7,475 over the next 60 months passes the means test and earns eligibility for filing a Chapter 7 bankruptcy. More than $12,475 fails the means test. If the disposable income is somewhere between these two amounts, then further calculations must be done to determine eligibility for a Chapter 7 bankruptcy.
Why Do You Need a Bankruptcy Lawyer?
It’s important to note though that a Chapter 7 bankruptcy petition is a better choice for a debtor who is not attempting to hold on to secured property such as a mortgaged home.
There are other caveats and cautions in bankruptcies, so if you’re considering filing for bankruptcy, it’s best to get some guidance and advice from a bankruptcy attorney to avoid any misstep. Call us at Pew Law Center to talk to one of our experienced bankruptcy lawyers in AZ.