What You Should Know About Colorado’s Means Test in Bankruptcy

When considering bankruptcy in Colorado, it’s crucial to understand the means test, which determines eligibility for Chapter 7 bankruptcy. This test assesses whether your income qualifies you to file for bankruptcy relief or if you must consider Chapter 13 repayment plans.

The means test in Colorado is based on your family's size and your current monthly income. To pass the means test, your income must be below the median income for a household of your size in Colorado. The U.S. Census Bureau regularly updates these income figures, and it's important to verify the current thresholds. As of recent reports, the median income limits in Colorado vary depending on the number of people in your household.

If your current monthly income exceeds the median for your household size, you will need to fill out additional forms to evaluate your disposable income. This process involves deducting allowable monthly expenses from your income to determine if you can afford to repay a portion of your debts—a requirement for filing Chapter 13 bankruptcy.

It’s also essential to note that certain expenses can be deducted from your income to arrive at your disposable income. These deductions include necessary living expenses such as housing, utilities, transportation, taxes, and certain secured debts. Understanding which expenses are allowable can significantly impact your eligibility under the means test.

If you find that your disposable income allows for debt repayment, you may end up filing for Chapter 13 bankruptcy instead of Chapter 7. Chapter 13 bankruptcy involves a repayment plan, allowing you to keep more of your assets while making structured payments to your creditors over a three to five-year timeframe.

Failing the means test can feel discouraging, but it's not the only option. You might still qualify for Chapter 7 bankruptcy if you can demonstrate “special circumstances” that justify your higher expenses. Additionally, seeking advice from a qualified bankruptcy attorney can provide clarity and guidance tailored to your specific financial situation.

In conclusion, understanding Colorado's means test is essential when navigating bankruptcy options. Keeping abreast of the median income levels, knowing what expenses can be deducted, and consulting a professional can significantly influence your bankruptcy filing process and the outcome you desire.