Anyone suffering from overwhelming credit card debts, student loans, mortgage payments, and medical bills can file a Chapter 7 Bankruptcy to get a fresh start, but they must first pass the Maryland Means Test. It takes your family size, expenses, and income into account to determine if you have sufficient disposable income for debt repayment.
Although the test is designed to limit the number of debtors who qualify for Chapter 7 Bankruptcy, most who take it pass easily. If you don’t qualify for Chapter 7 or if you prefer to keep certain assets – like your home or an expensive car – you can pay them with a Chapter 13 Bankruptcy plan.
Here’s how the test calculation works and what it can mean for a bankruptcy case.
Calculate Your Average Annual Income
To get your “average annual income,” you need to know your “current monthly income,” which is your household’s average income over the last six months.
You can do this by getting the income for each month and dividing their sum by six. This total needs to cover everyone in your household, even those who aren’t seeking bankruptcy relief.
Then, multiply your current monthly income by 12 to get your average annual income. If the amount is below Maryland’s median income, you pass the means test!
Income can in the form of:
- Business operation and rental property net income
- Child support and spousal support payments
- Pension income and retirement income
- Unemployment compensation
- Disability insurance benefits
- Workers’ compensation
- Annuity payments
- Gross salaries
Median Income In Maryland
The Maryland median income limits vary depending on the number of people in your household. As of November 20, these limits are:
- 1 member household – $70,964
- 2 member household – $93,255
- 3 member household – $107,552
- 4 member household – $130,252
- Add $9,000 for every additional member
What if You Fail the Maryland Means Test?
Anyone who fails the means test but still hopes to be approved for Chapter 7 – or for those who want to pay part of their unsecured debts through Chapter 13 – needs to take the second part of the test.
First, gather every document related to your expenses over the past six months. Common household expenses like food, supplies, and utility bills need to be based on a Maryland household’s average costs, and you can find these amounts on the IRS National Standards: Food Clothing and Other Items list. Expenses like income tax, mortgage payments, car payments, insurance, and healthcare don’t require adjustments.
When you subtract these allowable expenses from the monthly income you calculated, you get “disposable income” that you can put toward paying off debt. If the means test determines that you have enough disposable income for Chapter 13 bankruptcy, then you can’t get a Chapter 7 bankruptcy discharge.
Should You Seek Legal Advice from a Bankruptcy Attorney?
When you use the Maryland means test and file for bankruptcy for the first time, it’s easy to overlook certain expenses and be confused by the legal requirements. Our attorneys at The Phillips Law Offices can help.
We can correctly calculate your income and maximize every allowable expense to raise your chances of passing the bankruptcy means test. Our team of professionals will also help you navigate through bankruptcy court and do the heavy lifting for your Chapter 13 or Chapter 7 case. Call us today at (301) 494-4250 for a free consultation!