When it comes time to file for bankruptcy, it is likely to seem like your to-do list is overflowing. One of the most important things to make sure of, however, is that your bankruptcy is getting done right. For those filing Chapter 7 bankruptcy, this means completing the Colorado means test.
Understanding Chapter 7 Bankruptcy
If you aren’t familiar with the terminology or you are just getting started, Chapter 7 bankruptcy, also known as a “liquidation bankruptcy,” is filed for the purposes of wiping out your debts and starting anew. Chapter 7 bankruptcies are the most common type of bankruptcy, making up more than 63% of bankruptcies filed in 2016. They usually only take three to four months and are the simplest form of bankruptcy filings available. This explains why Chapter 7 filings are so popular amongst those seeking financial relief.
Unfortunately, not all filers are eligible for the benefits of Chapter 7 bankruptcy. While it varies by state, eligibility for bankruptcy, specifically Chapter 7 filings, depends on measuring a combination of debt, income, and property.
Understanding the Colorado Median Income
In Colorado, those who have a yearly income higher than the Colorado median, you must complete the Colorado bankruptcy means test calculation in order to determine their eligibility to file Chapter 7 bankruptcy. Your average household income can be determined by finding your average monthly income over the previous six months. That being said, timing can be critical and may affect your eligibility to file.
While the Colorado median income varies year by year and is subject to change, it is currently the following:
Household Size Median Income
1 person $56,698
2 person $74,305
3 person $83,180
4 person $94,472
5 person $102,872
6 person $111,272
7 person $119,672
8 person $128,072
9 person $136,472
10 person $144,872
For example, if you are living in a 2 person household and have an income of less than $72,037, you are automatically eligible to file Chapter 7 bankruptcy and do not have to worry about completing and meeting the Colorado means test.
Completing the Means Test
If you find yourself with a yearly income over the Colorado median income (in accordance with your house size,) you must complete the Colorado means test to determine your eligibility for Chapter 7 bankruptcy filing. This involves calculating your expenditures and earnings, including all sources of income (for example, any funds coming from wages, rental, unemployment benefits, retirement plans, and so forth.) You do not have to include Social Security benefits.
Depending on your situation and your household size, certain expenses are “allowed”, such as costs of healthcare, clothing, housing expenses, education costs, and more. These allowed expenses are subtracted from your income. The allowed amount for each included expenditure varies, however, based on household size. An experienced bankruptcy attorney will be best suited to complete this test based on the facts of your case, as mastering the means test and the bankruptcy code can be an intensive process.
If, after all allowances are subtracted, your total monthly income over the course of the next 60 months is less than a certain amount established by Colorado state law, you have passed the Colorado means test and will be eligible to file a Chapter 7 bankruptcy. If after you complete the Colorado means test, you find that your income is over the state-law established amount, you may have to seek an alternative such as a Chapter 13 bankruptcy.
You wouldn’t be alone if you think this is all a bit overwhelming. Doing the Colorado means test takes patience, careful planning, and a lot of knowledge about up-to-date bankruptcy code. While it may seem like another barrier to financial relief, completing the Colorado means test is pivotal to making sure you get the most out of your bankruptcy.
If you are filing for bankruptcy, our firm can help you navigate the Colorado means test and tell you if you are eligible to file a Chapter 7 bankruptcy. Don’t hesitate to contact our Colorado bankruptcy specialists today.
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