Twists and turns on the bankruptcy means test for newly unemployed debtors

Debtors with relatively high incomes who suddenly lose their job have some unique hurdles to clear if they need to consider bankruptcy. This is because the “means test” that calculates whether or not a debtor is eligible for a Chapter 7 discharge is a backwards-looking thing; all calculations are based on your earnings in the six months before a bankruptcy filing.

Orlando bankruptcy lawyer Jonathan Alper gives a good example of this on his site, where he discusses a debtor who, until recently, has been earning $8,000 a month, then whammo!, a pink slip arrives.

Now most folks aren’t going to pass the means test if they earn $8,000 a month unless they have a bushel of children to feed. (Actually, in Massachusetts, a five person family would allow him to pass). But they can wait a few months, while some income “drops off the end,” and then file.

Then there is the situation of the unemployed debtor who has been out of work for a while. If he or she somehow manages to find a new $8000 / month job, but still has an overload of debt, this would be a situation where you would file the bankruptcy case quickly. The debtor’s unemployment benefits alone are unlikely to cause a means-test failure, but severl months of working at high wages will eventually cause a disqualification. Just another day in the topsy-turvy world of bankruptcy law!

Although attorney Alper’s analysis is based on Florida figures, the situation is generally about the same for unemployed persons considering bankruptcy in either Massachusetts or New Hampshire.


By Doug Beaton

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