Since 2005, the bankruptcy “Means Test” has been used to determine who qualifies for  Chapter 7 bankruptcy relief here in Rhode Island.  It acts as a “gatekeeper”.  The Means Test attempts to measure the cost of living in Rhode Island and how your gross income compares to that of other families of the same size.

The test is arbitrary and has had some unfair results.

For each state, the census calculates the median (middle) gross income for all family sizes.  A person filing for bankruptcy must then show all the gross income generated in their household for the prior 6 months, double it, then compare that number to the census figure.

If their gross income falls below the census figure, they pass the means test and can move forward.  If their gross income is higher than the census figure, the process gets very complicated and can prevent a debtor from filing a Chapter 7 case.

Failing the Means Test often means having to pursue relief under Chapter 13 of the bankruptcy code which is a 5 year repayment plan.

On November 1, 2009 there will be new income limits for Rhode Islanders who are contemplating a bankruptcy filing.  Only households of 2 or 3 persons will find it easier to file bankruptcy after the change.  Single persons and households larger than 3 will find it more difficult.

Here are the new median income figures for RI households that will be used for Means Testing effective 11/1/09

• 1 person $ 45,222
• 2 people $ 62,806
• 3 people $ 76,846
• 4 people $ 87,002
• 5 people $ 93,902
• 6 people $ 100,802
• 7 people $ 107,702
• 8 people $ 114,602
• each additional person add $ 6,900

But what counts towards gross income?  And how do we calculate family size for income comparison when there are so many living arrangements these days?  These are good questions and cannot be answered in this article because every case is different.

If most/all your income is being used just to pay monthly credit obligations you need advice today.  Call 467-6800 for a free telephone consultation, or leave some contact information and I will be happy to call you.