How will my bonus affect my bankruptcy eligibility?

The Means Test Looks at Your Last Six Months of Earnings

The Means Test was implemented as part of the 2005 bankruptcy reforms with the goal of making it more difficult for those with the “means” to pay back their creditors to file for chapter 7 bankruptcy.

The means test looks at a consumers current monthly income or “CMI.” Your CMI is defined as your average gross earnings over the last six months including a holiday bonus. If these earnings are below your state’s average for a household of your size, the means test does not come into play and you are eligible to file for chapter 7 bankruptcy.

If, on the other hand, your household income exceeds your state’s average, it will be necessary to crunch the numbers to determine if you pass the means test. The Means test deducts “allowed expenses” such as transportation costs from your income. If after expenses you have very little disposable income, you will qualify for chapter 7.

A large holiday bonus will be counted as income for Means Test purposes, potentially making it more difficult to file for chapter 7 bankruptcy. Your salary alone may be below the state average or your expenses may be great enough to qaulify for chapter 7 absent a large holiday bonus. When the bonus is added to the mix, it may temporarily inflate your income causing a failing grade on the Means Test. If you would otherwise qualify for chapter 7 without your holiday bonus, waiting six months to file bankruptcy will exclude the bonus from your current monthly income and allow you to file for chapter 7.

If you have questions about bankruptcy, contact an attorney.