Fresno Bankruptcy Lawyer: Bonus and Overtime Impacts on the Means Test

Many people consider a substantial bonus or generous overtime pay as a financial blessing. However, when bankruptcy is being contemplated, these additional earnings can complicate matters. A skilled Fresno bankruptcy lawyer can help navigate such complexities. In this article, we will explore how these earnings can affect the means test when filing for bankruptcy.

To determine eligibility for Chapter 7 bankruptcy, a debtor must pass the “means test”. If their income is below the state median, they automatically pass the test. However, if it’s above, they must evaluate their disposable income after deducting qualifying expenses. A substantial bonus or overtime pay can increase a debtor’s income, potentially impacting their eligibility for Chapter 7 bankruptcy.

How a Bonus can Impact the Means Test

A bonus represents additional income that is usually considered when calculating income for the means test. Just like regular income, the bonus is averaged over the prior six months irrespective of whether it was a one-time occurrence or if any part of it was paid out within that period. This can artificially inflate a debtor’s income average, thereby impacting the means test outcome.

The timing of filing bankruptcy can be strategic in such situations. For instance, if a debtor received a hefty bonus six calander months and one day before filing bankruptcy, this bonus will not be included in the income calculation for the means test. Therefore, it’s recommended to consult with an experienced Fresno bankruptcy lawyer in making such decisions.

Implications of Overtime on the Means Test

Like a bonus, overtime pay can also push a debtor’s income over the median threshold. If a debtor has consistently worked overtime, this additional income will be reflected in their bankruptcy filing.

However, if a debtor’s overtime was sporadic or if it will not continue in the future, it is important for a Fresno bankruptcy lawyer to argue that this inconsistency should be considered in the means test calculation. If the argument is successful, the overtime pay might not be included, possibly enabling a debtor to pass the means test.

What if I don’t Pass the Means Test?

If a debtor’s income is too high to pass the means test as a result of bonus or overtime pay, they may not qualify for Chapter 7 bankruptcy, which offers the opportunity for a fresh start by discharging most debts. Although this may appear as a setback, it is not the end of the road. A debtor can consider filing for Chapter 13 bankruptcy, which creates a plan to repay creditors over three to five years.

Navigating through the means test can be complex, especially when additional earnings such as bonus and overtime pay come into play. It is essential to work closely with a knowledgeable Fresno bankruptcy attorney who can provide guidance based on your unique situation.