If you are having financial difficulties and you are thinking that it might be time to consider filing a bankruptcy case, then it might just be time for you to do so. Do not make the mistake of thinking that filing a bankruptcy case on your own (or even with an attorney not familiar with bankruptcy law) is the way you should go. Perhaps the worst thing you can do in the face of financial difficulties is to go at it alone or with bad advice. This is the time to seek the advice of a competent and experienced attorney who knows bankruptcy law and who is willing to talk to you in detail about your situation.
Are You Eligible to File Chapter 7?
One of the issues that you might discuss with a competent bankruptcy attorney is whether or not you are “eligible” to file a Chapter 7 case. Using the word ‘eligible’ is somewhat misleading. The truth is that any individual person can file a Chapter 7 case. However, since the enactment of sweeping legal changes to Chapter 7 that went into effect in 2005, there are significant initial considerations to contemplate. Failure to do so can have costly and undesirable consequences. Perhaps the main consideration for the individual consumer is the “means” test associated with Chapter 7. This “means” test will apply to all individual Chapter 7 case filings with a few limited exceptions.
To determine how the “means” test applies to you, your attorney will start by looking at the total amount of gross income (not net or “take home pay”) received in your household each month. Then, your attorney will consider the number of persons regularly residing in your household (a/k/a “household size”). If your total gross household income is greater than the median gross income for your household size in your state, then the filing of a Chapter 7 case for you will raise the “presumption of abuse.” You don’t want this. Even though you can rebut the “presumption of abuse” with “special circumstances”, this effort can be costly. And if you’re struggling to make ends meet, it will likely be impossible for you to be able to pay the legal fees incurred in such an effort.
An Example of Eligibility
On the other hand, if your total gross household income is less than the median gross income for your household size in your state, then the filing of a Chapter 7 case does NOT raise the “presumption of abuse” and you need not worry about “special circumstances” to rebut the presumption. Let’s look at an example to illustrate all of this. In Mississippi, a household size of four (4) can have a monthly gross income of $5,200.00 if filing a Chapter 7 case on or after November 1, 2015. So, if you are in a household size of four (4) and your gross monthly household income is equal to or less than that amount, you can file a Chapter 7 case without worrying about the “presumption of abuse” or with proving “special circumstances”.
What if you are a household size of four (4) and your gross monthly income is just a little more than that, say $5,500.00? Don’t worry. All is not lost. However, your attorney is going to have to apply the legally recognized deductions to your gross income to determine if the “presumption of abuse” can be avoided in your case even though your gross income is slightly over the limit. Applying the deductions allowed by law is not the same thing as “special circumstances”; but, it is a tricky part of dealing with the “means” test in a Chapter 7 case.
If all of the above sounds complicated, you’re hearing it right. And it is yet another reason why you must seek competent and reputable bankruptcy counsel in such a situation. The foregoing information is a very basic and simple explanation of the “means” test concept. Our attorneys can help you navigate the maze that is the “means” test so that you can decide if filing a Chapter 7 case is an appropriate response to your situation.
Ed Woods is the Managing Attorney of several of the Bond & Botes Law Offices throughout Mississippi. He holds a Bachelor of Science from the University of Southern Mississippi, and a Juris Doctorate from Mississippi College School of Law. Ed puts his extensive knowledge of bankruptcy law to use defending consumers from debt collection lawsuits and more. Read his full bio here.