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Bankruptcy Court

If you are considering filing for bankruptcy, you will fill out some paperwork for what is called a “Means Test” and a Liquidation Test”.

According to the United States Department of Justice:

Most individual debtors filing for bankruptcy relief are required to complete a version of Bankruptcy Form 122. Official Form 122A-1 (Chapter 7 Statement of Your Current Monthly Income), Official Form 122A-1Supp (Statement of Exemption from Presumption of Abuse Under § 707(b)(2)), and Official Form 122A-2 (Chapter 7 Means Test Calculation) (collectively the “122A Forms”) are designed for use in chapter 7 cases. Official Form 122C-1 (Statement of Your Current Monthly Income and Calculation of Commitment Period) and Official Form 122C-2 (Chapter 13 Calculation of Your Disposable Income) (collectively the “122C Forms”) are designed for use in chapter 13 cases.

A debtor must enter income and expense information onto the appropriate form (i.e., the 122A Forms or the 122C Forms) and then make calculations using the information entered. Some of the information needed to complete these forms, such as a debtor’s current monthly income, comes from the debtor’s own personal records. However, other information needed to complete the forms comes from the Census Bureau and the Internal Revenue Service (IRS). This Web site reproduces the Census Bureau and IRS Data necessary to complete the 122A Forms and the 122C Forms. The source data reproduced here is also available directly from the IRS and Census Bureau using the links at the bottom of this page.

If you are considering a Chapter 13 Bankruptcy, where you are able to retain certain assets, and you enter into an agreement to repay creditors over a period of time, you need to fill out a “Liquidation Test”. According to the Legal Consumer website:

Chapter 13: “Liquidation test” / “best interest of the creditor’s test” of 1325 (a)(4) — issues, timing, computation, deductions
The “best interest of creditors test” of � 1325(a)(4) — also informally known as “the liquidation test” — requires that unsecured creditors in a Chapter 13 case be paid at least as much through the confirmation of a proposed Chapter 13 plan as they would receive if the debtor’s case were liquidated under Chapter 7 of the Bankruptcy Code.

It is important to remember that number is not arrived at simply by adding up the value of the property; you are also allowed to reduce that amount by the administrative costs of selling the item, etc. to arrive at the true amount that unsecured creditors would get in a Chapter 7 case.

This may all sound complicated and confusing. Why not come in for a free consultation with Caroline Secor.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida. For more information, go to our web site or call 727-335-7151.