Chapter 7 bankruptcy (the most common form of bankruptcy) essentially wipes away a large portion of your unsecured debts and protects certain assets you may possess.
Briefly, unsecured debts are not backed by any collateral. Unlike car and home loans, unsecured debt means that creditors aren’t able to reclaim property if you default. Credit card and medical debt are examples of unsecured debt.
But many people don’t know that there is a test to qualify for Indiana Chapter 7 bankruptcy. So let’s get into the details.
What is the Indiana Bankruptcy Means Test?
This test applies to higher-income filers whose average household income surpasses the Indiana median income limit for household size. (In other words, no test is required for household incomes that are at or below the median.)
To determine your average income, take the most recent six months of your income, and divide the total by six. Next, take that monthly average and multiply it by twelve months. This represents your average annual income.
Now take that annual amount and compare it to Indiana median income thresholds determined by the Census Bureau. Be aware these income parameters change every six months or so, but for bankruptcy cases filed on or after November 1, 2022, total income must be at or below the following thresholds:
1 Member Household – $60,725
2 Member Household – $75,774
3 Member Household – $89,800
4 Member Household – $102,605
5 Member Household – $112,505
6 Member Household – $122,405
7 Member Household – $132,305
8 Member Household – $142,205
9 Member Household – $152,105
10+ Member Household – $119,713.00 plus $9,900 for each additional family member
Again, if your household income average is at or below the limits as described above, you are exempt from having to complete a means test.
But if your total median household income surpasses the limits above, you will need to complete the Indiana Chapter 7 bankruptcy means test.
Completing the Means Test
Completing this test is a complex task, but we’ll provide a general overview to give you a sense of what’s involved. You may be able to find a bankruptcy means test calculator online, but most people hire a bankruptcy attorney to help them through this process because it can be overwhelming. In addition to the process being challenging, an online means test for bankruptcy calculator may be incorrect and you may end up with the wrong number.
To complete the test, first, you will need to collect information related to all your income and expenses.
Example income includes things like:
- Salaried, hourly, and overtime income
- Spousal income (in a joint household or if not legally separated)
- 1099 independent contractor income
- Indiana government income
- Child support and alimony
- Net business income
- Unemployment or workers’ compensation benefits
Expenses can include things like:
- Income taxes
- Child care expenses
- Secured debt for your car and home
- Alimony and child support payments
- Health and disability insurance premiums
Note: Meeting with a bankruptcy law attorney to go over income and expense definitions is an excellent idea. Additional types of income and expenses are allowed, and the list above is by no means exhaustive.
Next, you’ll need to deduct allowable monthly expenses from your current monthly income to calculate disposable income– which is defined as the remaining funds available to pay off debt after deducting all expenses from income.
If your monthly disposable income is at or below the current qualifying limit, you may file for Chapter 7 bankruptcy. However, if your monthly disposable income exceeds the maximum allowable, you will fail the test and be prohibited from filing for Chapter 7 bankruptcy.
Be aware, if you fail the Chapter 7 means test, you still have other options, including Chapter 13 bankruptcy and debt settlement plans. Talk with your attorney to explore these options.
Where Can I Get Expert Help?
Determining whether you’re eligible to file for Chapter 7 bankruptcy in Indiana can be complex and confusing. But you don’t need to tackle the bankruptcy means test on your own — you can enlist the assistance of Sawin & Shea’s experienced Indiana bankruptcy attorneys, who can help you understand the laws and procedures associated with declaring Chapter 7 bankruptcy.
For seasoned support you can trust, contact the bankruptcy attorneys at Sawin & Shea, LLC. Call us today at 317-759-1483, or you can contact us online here.