When you face financial hardship, you may be looking at a Chapter 7 bankruptcy or Chapter 13 bankruptcy and wonder what the means test is in Washington. I had the chance to discuss and help others understand the chapter 7 bankruptcy means test in Washington State on 1150am KKNW and you can listen to the entire show here:
If you pass the bankruptcy means test in Washington, you may qualify to file a Chapter 7 bankruptcy, which is preferable to many people in Washington as it’s often less expensive than a chapter 13 bankruptcy and eliminates most of your debt in a little over 90 days. In fact, in the 12 month period ending March 31, 2021, Chapter 7 bankruptcies accounted for 80.83% of bankruptcies filed in Washington according to the 2021 government bankruptcy filing statistics.
The government’s means testing website may be confusing and the means test may be difficult to pass as the US Trustee may be more likely to audit your case should you attempt to qualify for chapter 7 bankruptcy by passing the means test, so the purpose of this article is to show how the Washington state means test applies to you whether you live in Spokane or Seattle.
Let’s get started. If you want to run through it together, feel free to schedule your free consultation with me.
Understand the Washington Median Income Levels
The first part of the means test is to determine whether your income falls below the median for Washington state.
See the table below for bankruptcy filings in Washington on or after May 15, 2021 based on income and household size (source). If helpful, you can also take a Chapter 7 means test calculator which does the calculations for you.
Please note that you would add $9,000 for each individual in excess of 4.
Do you own a home or a vehicle that has positive equity? If so, please note that the Washington state means test does not cover whether you will be able to keep certain assets that carry a positive equity. For these assets, you would need to look at exemptions. In Washington we can use either Federal or Washington State exemptions. Thankfully, the Washington State homestead exemption has increased to cover more of your home’s equity, up to the median sales price in your county. In King County a homeowner can protect up to $729,600 of equity in a primary residence. See more information here.
How Is Income Calculated For The Means Test in Washington?
Many people in Washington have variable income or spousal income that makes the means test more challenging. So, how is income calculated for the means test?
The means test uses your current monthly gross income (pre tax unless self employed) for your household. The current monthly income is based on all of the income you receive from all the sources during the six months prior to filing for bankruptcy, but does not include social security or VA disability payments. If your income is variable during those 6 months, you would add the income for the prior 6 months and multiply that number by 2 to get your yearly income for means test purposes.
For example, if you would like to file bankruptcy on April 7, your current monthly income would be based on the preceding six months from October 1 to March 31st.
Here’s the exact language from the income calculation bankruptcy form for your reference.
What Happens If I Make More Than the Means Test allows for Washington?
You aren’t necessarily eliminated from a Chapter 7 bankruptcy if your income exceeds Washington’s state median income for your household size.
The next part of the means test is to understand your expenses as you are allowed to deduct actual amounts of certain expenses on the means test. For example, consider the following options:
- Income taxes
- Childcare expenses
- Mandatory employment deductions such as union dues
- Certain insurance premiums
- Secured debt payments for your car or home
- Child support and alimony payments
- Caring for family members living at home or outside of the home.
If you find that you either make a lot of money or if you have too many assets, you may look into a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is referred to as a wage earners plan. It is a monthly payment that often lasts 3 or 5 years. If helpful, you can also take a Chapter 13 calculator to estimate your Chapter 13 plan payment.
What Other Information Is Helpful To Know About the Means Test?
The median income limits in Washington change every 6 months although there are exceptions. For example, the median family income for Washington is $71,060 for 1 earner in Washington for cases filed on or after May 15, 2021, and the limit was $70,194 for 1 earner filed between November 1, 2020 and March 31, 2021. Additionally, the median income does not always go up and it can go down if the median income in the state goes down.
I would love to answer any other questions you have. Please feel free to call Symmes Law Group, PLLC at (206) 682-7975 or contact me if you have questions or would like to schedule a free initial bankruptcy consultation.