Filing a Chapter 13 bankruptcy is a common option for debt relief, and part of the process includes completing a means test.
The means test calculates your annual, monthly and disposable income to help better evaluate your eligibility.
Average monthly income
Your AMI calculations come from your household income from the six months prior to filing for bankruptcy. You total your income during that time period and divide it by six to get an AMI.
Then you can use the AMI to understand your annual median income. To calculate the annual median income, multiply the AMI by 12. Colorado mandates a maximum amount of annual income based on the number of people in the home. For example, if you are single and filing Chapter 13, you cannot make more than $70,952. If your household has four members, the limit is $120,898.
Disposable income must go directly into your Chapter 13 plan to pay unsecured creditors. Once you complete the plan, they receive nothing else because the agreement wipes clean the remaining unsecured debt.
Not included in your disposable income are certain necessary expenses listed by the United States Trustee’s Office. Examples include clothing, food, health care expenses and supplies you need in the household. However, there are caps on the amounts of these expenses based on your household size. If you exceed those limitations or have special needs not listed, you must provide proof and request approval for those expenses.
If you do not qualify for a Chapter 13 bankruptcy, you may have other alternative options for debt relief.