Written by Attorney Jacquelyne N. Mosley-Pastrana.
Updated July 11, 2019
In Arizona, Chapter 7 bankruptcy is commonly used to discharge debt and give debtors a fresh start. In 2005, to deter fraud, the Bankruptcy Court created a “Means Test” under the Bankruptcy Abuse Prevention and Consumer Protection Act. This test determines whether your Chapter 7 filing is “presumed to be abuse.” Through Chapter 7 bankruptcy, the law allows certain debts to be wiped out. If a filer has the money to pay back their debts, filing for Chapter 7 relief would be presumed to be abuse, or unfair. The Means Test itself requires you to fall within certain income levels to qualify for Chapter 7 bankruptcy in Arizona. The test is also used to determine whether your income could be used to pay off debts. Unless exempt, you must qualify under the bankruptcy Means Test in Arizona to file for Chapter 7 bankruptcy relief. You may be exempt from the Means Test if what you owe is not primarily consumer debt. For example, if your debt was due to business holdings or transactions you had with Insys Therapeutics in Chandler, you may be exempt from the Means Test. The money you lost when the company filed for bankruptcy would be business debt. Other exemptions specifically relate to falling into debt during military service for those such as disabled veterans or active duty National Guard/Reservists.
Arizona Median Income Levels
Arizona Median Income Standards for Means Test for Cases Filed On or After May 1, 2020
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Discharge in Bankruptcy for Arizona
An Arizona bankruptcy discharge is a one-page final order issued by the Arizona Bankruptcy Court wiping out certain debts you listed under the bankruptcy. Few debts will not be removed and are considered non-dischargeable debts. Common non-dischargeable debts include student loans, some tax debt, child support, and alimony.
A Chapter 7 bankruptcy in Arizona usually takes 4-6 months long. You must complete the requirements before filing. After you initially file your Arizona bankruptcy paperwork, take the second debtor education course from an agency approved by the U.S. Trustee in Arizona. Very rarely is a bankruptcy discharge denied by the Arizona Bankruptcy Court. When this happens, it is for such reasons as trying to defraud a creditor, destroying records, lying under oath, and inability to explain the loss of assets to the court.
Once you get your Arizona bankruptcy discharge order, keep it in a safe place. Some have used their bankruptcy discharge order to let creditors know that they can no longer contact them because the debt is discharged. After receiving their discharge, many people then go on to rebuild their credit.
Arizona Means Test Calculator
There are many Means Test calculators available online. It is vital that whichever Arizona Means Test Calculator you use, that it is up to date with the correct figures. The first step is to determine whether your income is below Arizona’s median income level. You can calculate your monthly income for the six months before filing for bankruptcy and compare it to the median income for households of your size in Arizona. Ensure that you are correctly calculating all income when comparing it to the income levels in Arizona. If you fall below the income levels of households of your size in Arizona, then you have passed the Arizona Means Test and are eligible for Chapter 7 bankruptcy relief. If your income is above the median income level in Arizona, you will need to complete the Means Test Calculation form.
The Means Test Calculation calculates your disposable income by adding up your monthly expenses and subtracting them from your monthly income to determine whether you have money left over to pay down your debt. Make sure you are giving the correct information with allowable living expenses. You need to have negative disposable income to qualify under the Means Test Calculation. Chapter 7 is meant to be for people who cannot genuinely afford to pay back their debts. If you have positive income, it gives rise to the “presumption of abuse” because you have money left over to pay down your debt.
If you have a negative disposable income, or close to negative disposable income, you may be a great candidate for Upsolve’s help. Upsolve offers its services at no cost to low-income individuals or families in Arizona that fall below Arizona’s median income level limit.
What Happens If I Fail the Means Test for Arizona?
If the Chapter 7 Means Test determines that you have money to pay off your debt, then you may first want to review the numbers you previously listed to make sure they are correct. After recalculating, some people wait to file if they find that they still fail the Means Test. For example, if you won a lot of money from a bet on the Cardinals, you would need to disclose the amount you will be receiving. Your winnings could impact your income level, which in turn could affect your ability to qualify for Chapter 7 bankruptcy in Arizona.
If you think you may fail the Arizona Means Test, you may want to contact a bankruptcy attorney. A local bankruptcy attorney in your state will be able to advise you on your options appropriately.