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More People May Qualify for Alternative Bankruptcy Options

Supreme Court Modifies Means Testing for Certain People
When determining whether you are eligible to file a Chapter 7 bankruptcy, you usually must show that your annual household income is less than that of the average family in your area. The test that makes this determination is informally called the “Means Test”, i.e. do you have the means to pay your creditors. Being ineligible for a Chapter 7 would mean considering other Chapters for relief from debt, which may not be as favorable to your financial situation.

For the purposes of the Means Test, your annual income is calculated by taking your last six months of household income and multiplying that amount by two. By looking at your last six months of income, the court is able to estimate your projected disposable income for the next year. Because the Internal Revenue Service (IRS) considers just about any money that comes to you as income, things like disability benefits are included in the calculation of your income. This caused problems for people whose benefits ceased within the six months prior to filing because their income appears to be higher than it will be in the future.

The good news is, that as of June 7, 2010 the United States Supreme Court has ruled that because the Means Test is intended to calculate “projected disposable income”, the court may account for changes in income that are known or virtually certain when analyzing your income for means test. So, disability benefits or other temporary income that ceased prior to your filing bankruptcy should no longer be included as income as the loss of those benefits is ‘known or virtually certain’.

If you would like to discuss your income and which type of bankruptcy you qualify for contact a Jacksonville Bankruptcy Lawyer or call 904-685-1200 for a free consultation.

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