Beat The Means Test (ILLINOIS)
The law imposes what is called a Means Test for individuals filing Bankruptcy. While the intent of the law is to deter, prevent or delay the filing of a bankruptcy that is where experienced lawyers come in to defeat the test so good people can file a Chapter 7 or at least a low-cost Chapter 13.
WHO MUST TAKE THE MEANS TEST WHEN FILING BANKRUPTCYEveryone who primary debts are consumer debts has to take the Means Test. For most, it is only a simple exercise but for some it presents a challenge. Fortunately experienced and skilled lawyers know and understand the test. Experienced lawyers know how to defeat or at least minimize the effects of the test for those whose income is higher than set forth below.
THE FIRST STEPThe first step In the Means Test is taking your total income over the last six months and comparing it to the median income for all households in the USA of a similar size. If your income is above the median, then the Means Test form is supposed to calculate whether you are allowed to file Chapter 7.
The following is the median income for Illinois residents as of November 1, 2020The following is a rough guide on the monthly income for the last 6 months not counting the current month
1 person $4.831
2 persons $6.383
3 persons $7,631
4 persons $8,935
For each additional person add $750
SOCIAL SECURITY RETIREMENT & SOCIAL SECURITY DISABILITY INCOMEWhen calculating the Means Test one does not have to include income from Social Security Retirement nor Social Security Disability. But, Unemployment Compensation must be included.
WHO DO YOU COUNT?The number of persons in the household is generally the number on your tax return. But there can be some differences: children away at school; relatives living in your household including grandchildren: other relatives living with you; significant others and their children. Of course, one must include all the income for the household, but then also the bills for the whole household.
DEDUCTION FROM GROSS INCOMEAssuming the full Means Test applies to you, there are a slew of deductions that can allow a person to file a Chapter 7 assuming your attorney knows how to use them. To name a few:
o IRS allowances for housing, food, clothing and transportation.
o Federal and state taxes; social security and Medicare deductions.
o Court ordered deductions that will continue such as Child support.
o Child care and deductible tuition and school expenses of a child 18 years and under.
o Mandatory retirement plans, union dues and uniforms.
o Secured debt payments like Mortgage payments and car loans. Also, real estate taxes and homeowners insurance if you have a non-escrowed mortgage.
o Health Care but only out-of-pocket; Health Insurance premiums for you and your dependents. Also, term life insurance, and disability insurance.
o Charitable Contributions such as contributions to your church up to 15%.
o Continued contributions to elderly, chronically ill or disabled family members even if they don't live with you.
o Taxes that can't be discharged including interest on them.
o If only one spouse files a case, the Means Test allows multiple deductions for the non-filing spouse's expenses.
SOME OTHER POINTS TO CONSIDERo Spouses who are separated but file jointly: in essence there are 2 Means Tests-one for each spouse.
o The Means Test is limited to individuals whose debts are primarily incurred for personal or household expenses. If the debts are primarily (more than 50%) for business the Means Test is not required.
o Overtime premium and periodic bonuses. Such must be included as income.
CHAPTER 13 MEANS TESTIn Chapter 13 the Means Test form is slightly different and it dictates how big your payments will be. The bad part is that the individuals who exceed the median income have to file a 5 year repayment plan, less if all debts are paid in full, even if at the end the calculated amount to unsecured creditors is zero.
NEED FOR A SKILLED LAWYERThe above is a mere guide and should not be construed as legal advice. When contemplating filing a bankruptcy it is certainly best and prudent to seek the advice and counsel of an experienced lawyer who concentrates in Consumer Bankruptcy law. Skilled lawyers can often beat the Means Test and save clients Thousands of Dollars.