Since 2005, the bankruptcy “Means Test” has been used to determine who qualifies for Chapter 7 bankruptcy relief here in Rhode Island. It acts as a “gatekeeper”. The Means Test attempts to measure the cost of living in Rhode Island and how your gross income compares to that of other families of the same size.
The test is arbitrary and has had some unfair results.
For each state, the census calculates the median (middle) gross income for all family sizes. A person filing for bankruptcy must then show all the gross income generated in their household for the prior 6 months, double it, then compare that number to the census figure.
If their gross income falls below the census figure, they pass the means test and can move forward. If their gross income is higher than the census figure, the process gets very complicated and can prevent a debtor from filing a Chapter 7 case.
Failing the Means Test often means having to pursue relief under Chapter 13 of the bankruptcy code which is a 5 year repayment plan.
On November 1, 2009 there will be new income limits for Rhode Islanders who are contemplating a bankruptcy filing. Only households of 2 or 3 persons will find it easier to file bankruptcy after the change. Single persons and households larger than 3 will find it more difficult.
Here are the new median income figures for RI households that will be used for Means Testing effective 11/1/09
- 1 person $ 45,222
- 2 people $ 62,806
- 3 people $ 76,846
- 4 people $ 87,002
- 5 people $ 93,902
- 6 people $ 100,802
- 7 people $ 107,702
- 8 people $ 114,602
- each additional person add $ 6,900
But what counts towards gross income? And how do we calculate family size for income comparison when there are so many living arrangements these days? These are good questions and cannot be answered in this article because every case is different.
If most/all your income is being used just to pay monthly credit obligations you need advice today. Call 467-6800 for a free telephone consultation, or leave some contact information and I will be happy to call you.
Mark Buckley is a Warwick, Rhode Island bankruptcy lawyer and CERTIFIED FINANCIAL PLANNER professional. If you live in Rhode Island and would like a free telephone consultation to discuss your debt situation, please contact Mark Buckley.
Tags: filing for bankruptcy in RI, Mark Buckley, RI bankruptcy, RI bankruptcy lawyer, RI Chapter 7, RI means test
[...] RI Bankruptcy Means Test [...]
Nick Thompson Louisville Kentucky Bankruptcy Attorney
We always have to remember that the means test does not apply to the individual filing with the majority of his income with business debt and that this was done so that it would encourage people to go into business. We can strip the first mortgage on commercial loans but 1st residential home mortgages. We encourage people to go to college but dissallow them to file bankruptcy when they cant repay. Presently 829 billion is owed to student loan debt while less than that 826 is owed to credit cards. We get a deduction to reasonable secured debt like mortgage payments, yet we cant use the student loan as a deduction on the means test.
I found myself in a financial bind because I invested too heavily in the real estate back in the 2000s. Having bought several homes hoping to rehab them and flip them for a profit, I found out the hard way that it is really not that easy. Especially if you had purchased the homes at the highest, which no one would have known until the bubble had burst. In any event, I was left with these properties which were not selling, and eventually I had to dump them with a huge loss. The financial loss from these bad investments meant that I had to file for bankruptcy to get myself out of this rut that I was in. One moment I seem to have everything in this world, many properties, paper asset of over $1M. Then in the blink of an eye, when the real estate market burst, I had nothing. The lesson I have learned from this is that do not be greedy. Do not always try to take the shortcut and jump on the bandwagon for the latest money making scheme. If you want to be financially rewarded, make sure you are aware what you can afford, and stick to a budget that is reasonable. Do not put yourself in a position where you will have so much debt that you will have to file for bankruptcy protection.