Colorado Means Test: Frequently Asked Questions
Am I eligible for Chapter 7 bankruptcy protection in Colorado under the means test?
If you are considering Chapter 7 bankruptcy protection in the state of Colorado, a threshold issue is whether you are subject to the median income test. If you are, the next issue is whether you are subject to the means test. The median income test and means test were enacted in 2005 to determine if an eligible person has sufficient disposable income at the end of the month that can be used to pay unsecured creditors. If so, the person is pushed into a Chapter 13. A Chapter 13 requires you to make monthly payments to the Chapter 13 Trustee for 36 to 60 months.
Am I subject to the median income test? You must first be subject to the median income test before you are subject to the means test. You are not subject to the median income test if your debts are not primarily consumer debts. Therefore, if your debts are primarily tax, business, or other non-consumer debts you are not required to do the median income test. Disabled veterans, in certain cases, whose debts occurred primarily during active duty or performing a homeland defense activity are exempt from the median income test and the means test.
I am subject to the median income test. Am I subject to the means test? We then determine if your annual income is below the Colorado median income for your household size. You are exempt from the means test for Colorado if your annual gross income is below the Colorado median income level. If your income is above the median income level for your household size, you will need to complete the means test to figure out if you are required to pay back some portion of your unsecured debt. The median income amounts are routinely updated and you can find the most up-to-date means testing figures on The Department of Justice’s website. As of November 1, 2016, the median income levels for Colorado are:
- One Person Household – $55,162
- Two Person Household – $71,140
- Three Person Household – $80,481
- Four Person Household – $93,932
*Add an additional $8,400 for each person over four persons
How do I determine my annual household income for the means test exemption?
You use a six month lookback. You total your last six full calendar months of income from whatever source, excluding social security income. Then, you multiply the total by 2 to determine your annual income. Timing is critical. If you just lost your job or your income has decreased, you may want to wait a few months to pursue bankruptcy protection so that your annual income drops below the median income. Or, you may have received a big bonus five months ago. You then wait to file until the bonus income drops off from the six month lookback. Likewise, if you are about to receive a bonus or significant additional income in the near future you may want to file now so your annual income is below the median income level.
My income exceeds the median income and I am subject to the means test. What is the means testing process in Colorado?
You will need to submit basic information from your personal records about your monthly income and expenses. The complete list of means test forms is available on the US Courts website
The income must include every source of income in your household. You will need to include any wages, rental income, interest, dividends, pensions and retirement plans, and any money paid by others for your household expenses. Unemployment benefits and income must be included as well. The only income that does not need to be included is Social Security benefits. The “annual income” is divided by 12 to determine current monthly income. You then maximize the allowable monthly expenses to reduce any remaining disposable income. As a result, you may still be eligible to file a Chapter 7.
There are a number of expenses that can be included like those required for your health and welfare and any legal obligations. Our firm is able to help you compile a complete list of allowed expenses in Colorado so you are able to legally lower your disposable income. All allowable expenses can be subtracted from your income to determine if any monthly income remains which can be used to pay unsecured creditors in Chapter 13 bankruptcy.
You should always consult with an attorney to get specific expenses allowable for your household. However, there are a number of qualified common expenses that can be included:
- Healthcare (insurance premiums and out pocket costs)
- Rent or mortgage payments
- Housing expenses, like utilities, cable/internet, cell phone
- Car payments
- Car maintenance costs, including gas and insurance
- Certain education costs for employment
- Certain education costs for children
- Child and spousal support
- Involuntary deductions from your wages (e.g., retirement, union dues)
- Term life insurance
- Care for elderly or disabled immediate family members
- Continuing charitable contributions (e.g., your church)
Your household size will impact what you can deduct, and completing the means test will require the expertise of an attorney with extensive experience in the Bankruptcy Code and courts in order to complete the process accurately. Martin Long is a former Trustee for the Bankruptcy Court with the experience you need. If you are subject to the means test, our firm will be able to tell you if you are able to file Chapter 7 bankruptcy.
If you are considering bankruptcy in Colorado and would like to start the means test process, give us a call at (303) 832-2655 to schedule a free consultation with bankruptcy attorney Martin Long.