How Do I Pass the Chapter 7 Means Test in Massachusetts?

Filing for bankruptcy is an important decision that can offer a fresh start for individuals experiencing substantial financial hardships. In Massachusetts, one of the requirements for filing Chapter 7 bankruptcy is passing the means test, which is designed to evaluate whether you can afford to pay your debts or if you’re truly in need of the debt relief that bankruptcy provides.

What Is the Chapter 7 Means Test?

In essence, the Chapter 7 means test is a financial assessment tool. Its role is to measure your ability to repay your outstanding debts by comparing your income to the median income for households of the same size in Massachusetts. If your income falls below the median, you automatically pass the means test and qualify for Chapter 7 bankruptcy. This median income is updated frequently, so it’s important to verify the current figures at the time of filing.

However, earning more than the median income doesn’t automatically disqualify you. If your income exceeds the median, you will proceed to the second part of the test. Here, you’ll calculate your disposable income by subtracting various allowed expenses (both national and local) from your monthly income. The remaining amount is considered your disposable income. If this disposable income is insufficient to repay a significant portion of your unsecured debts, you may still qualify for Chapter 7 bankruptcy.

What is the Background and Context of Bankruptcy Law in Massachusetts?

In Massachusetts, the means test is enforced under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. This federal law brought the means test into play to prevent misuse of the bankruptcy system and to ensure that only those genuinely unable to repay their debts can have them discharged through Chapter 7 bankruptcy.

While the means test is a federal requirement, certain state-specific factors can also influence the process. For instance, Massachusetts has distinct exemptions that determine which of your assets can be shielded during bankruptcy. This includes costs such as rent or mortgage payments, utilities, taxes, transportation, insurance, and childcare, and certain other types of assets. Knowing and understanding these exemptions is crucial to ensuring you gain the maximum benefit from your Chapter 7 bankruptcy filing.

Exemptions under Massachusetts law play a critical role when you’re considering filing for bankruptcy. For instance, suppose you own a home with equity of $100,000. In Massachusetts, each individual is allowed to exempt up to $500,000 of equity in their home under the state’s homestead exemption. Therefore, if you’re a homeowner, you can protect your home equity and still file for Chapter 7 bankruptcy. Similarly, Massachusetts law allows you to exempt up to $7,500 in motor vehicle equity ($15,000 for elderly or disabled debtors), meaning you may not have to surrender your car in the bankruptcy process if its value is within this limit.

How Does the Chapter 7 Means Test Work?

The means test’s first step involves comparing your income with Massachusetts’ median income for households of similar size. For instance, as of July 2023, the median income for a single earner is $67,119, while for a family of four it’s $122,190. If your income is below these figures, you’re eligible for Chapter 7 bankruptcy. But if you earn more, you’ll need to proceed to the second phase.

The second phase of the test involves a more detailed examination of your finances. Let’s consider an example. Suppose you’re a single individual who earns $80,000 annually, above the median income for Massachusetts. The means test will require you to deduct allowable expenses from your income. These expenses can range from mortgage or rent payments, utility bills, transportation costs, health insurance payments, and even some of your income tax liabilities.

For example, the IRS allows $639 for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous for a family of one in Massachusetts. If you spend $1000 for these categories, you would only be able to claim $639. After subtracting all the allowable expenses, if you find that your disposable income is still high enough to pay off a significant part of your unsecured debts, you may not qualify for Chapter 7 bankruptcy.

How an Experienced Lawyer Can Help?

Given the complexities of the Chapter 7 means test and the broader bankruptcy filing process, the guidance of an experienced debt relief lawyer can prove invaluable. It’s not just about crunching numbers; understanding the nuances of the bankruptcy laws, exemptions, and the legal process in Massachusetts can significantly impact the outcome of your case.

An experienced bankruptcy lawyer can help you navigate the means test accurately, ensuring all income and allowed expenses are correctly accounted for. They can also help you understand the paperwork involved, and the consequences of any inaccuracies or omissions.

Moreover, they can provide critical insights into Massachusetts-specific exemptions and assist you in applying them to your case to protect your assets. An attorney who specializes in bankruptcy law is also likely to be updated on the latest developments and case laws, which could provide additional advantages when strategizing your bankruptcy filing. If you are considering filing for Chapter 7 bankruptcy in Massachusetts, call Benner Law at (774) 404-8321 for a free case evaluation.