The Bankruptcy Means Test Explained in North Carolina

The Bankruptcy Means Test is a crucial step for individuals considering bankruptcy in North Carolina. It helps determine whether a debtor qualifies for Chapter 7 bankruptcy or must file for Chapter 13 bankruptcy instead. Understanding this test can significantly influence the bankruptcy process and its outcomes.

The Means Test compares a debtor's average monthly income over the six months preceding the bankruptcy filing to the median income for a similar household size in North Carolina. If the debtor's income is below the state's median, they automatically qualify for Chapter 7 bankruptcy, which allows them to discharge most unsecured debts quickly.

For those whose income exceeds the median, the Means Test requires a more detailed examination of the debtor's expenses. Debtors must complete Schedule I, which lists their income, and Schedule J, which outlines their monthly expenses. The difference between income and allowable expenses determines whether they have enough disposable income to fund a repayment plan under Chapter 13.

In North Carolina, the median income figures are periodically updated, so it is essential to use the most current numbers when calculating eligibility. As of 2023, the median household income for a 1-person, 2-person, and larger household size can be found on the U.S. Trustee Program's website. This data is essential for determining your standing in the Means Test.

One important aspect to note is that certain expenses are allowed deductions in the Means Test calculation. These include necessary living expenses such as housing costs, utilities, food, transportation, and healthcare. However, the doctrine of necessity applies; only reasonable and essential expenses are considered. Debtors should ensure that all applicable deductions are claimed accurately to improve their chances of qualifying for Chapter 7.

If a debtor fails the Means Test, they may still have the option to file for Chapter 13 bankruptcy, which requires a repayment plan based on their disposable income. This option can still offer significant relief by consolidating debts and providing a structured path to financial stability.

It's important to consult with a qualified bankruptcy attorney in North Carolina to navigate the complexities of the Means Test. An experienced attorney can provide invaluable guidance throughout the entire bankruptcy process, helping debtors understand their rights and options under the law.

In conclusion, understanding the Bankruptcy Means Test is vital for anyone considering bankruptcy in North Carolina. By knowing your average monthly income, comparing it to the state median, and accurately calculating necessary expenses, you can determine your eligibility and take the first steps towards a financial fresh start.