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Sam Calvert


There are two types of bankruptcy usually used by individuals — Chapter 7 and Chapter 13. Either can help you deal with your finances. Chapter 13 is a payment plan type bankruptcy, that lets you pay your bills, or a portion of your bills, over three to five years. Chapter 7, on the other hand, wipes out your dischargeable debt without a payment plan, and usually takes about four months.

However, in 2005 Congress, after a massive lobbying campaign, enacted something called the “means test”. In the means test we add up all your income for the six months (not including the month of filing) before your case is filed. We then divide by six, and the result is your “current monthly income”.

If your “current monthly income” is less than the median income in Minnesota for a household of the same size as yours, you “pass” the means test.

If on the other hand your “current monthly income” is more than the median income in Minnesota for a household of the same size as yours, we go on to substract specific monthly expenses, such as mortgage payments, car payments, tax withholding, and living expenses. Some of these expenses are what you actually spend; some of these expenses are limited to amounts specified by the Internal Revenue Service. If there is a surplus after completing the means test there is a presumption that your case is a substantial abuse and the US Trustee may ask the court to force you into a chapter 13.

The median income is adjusted periodically according to Census Bureau information. For example, in December, 2020 (when this post is written), the median income is as follows:

 Household of one — $61,811 Household of two — $81,478.00 Household of three — $100,430.00 Household of four — $118,646.00 For each household member over four, add $9,000.00. As always, if you have questions, feel free to call me at 320-252-4473 to set up a meeting by Zoom, telephone or in person.

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