Ch 7 Bankruptcy Means Test
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The biggest change for chapter 7 bankruptcy filers after the new bankruptcy laws were passed in 2005, is the addition of the bankruptcy means test. The organizations, mostly credit companies, that wanted the bankruptcy laws changed, believed that a large majority of the consumers that file bankruptcy can actually pay their bills and just choose to file bankruptcy to get out of debt for no good reason. The means test is 8 pages of questions regarding your income and expenses that determine if you in fact have enough money to pay your debts. The means test measures whether or not the “presumption of abuse” arises, basically measuring if you are trying to abuse the bankruptcy system or not. So how does the means test work?
Declaration – The first section of the means test is a declaration for veterans or those who are filing bankruptcy on debts that are mostly non-consumer debts.
Income – The next section of the bankruptcy means test is the calculation of monthly income for your household. If you are not married or legally separated and your spouse has their own household, then you will provide your income information. If you are married and filing jointly with your spouse or filing alone, you will have to provide both your income and your spouses information. All figures must reflect average monthly income received from all sources, derived during the six calendar months prior to filing the bankruptcy case, ending on the last day of the month before the filing.
Application of Exclusion – After determining your household income, the means test will compare your income to other families of your size in your state. If your income is equal to or less than the median income, the presumption of abuse does not arise and you can sign the form. If your income is above the median then you will have to continue with the means test.
Marital Adjustment – Any income that was not received on a regular basis may be able to be subtracted in this section to adjust your monthly income for the means test.
Standard Deductions – This section of the means test will deduct expenses from your income for standard living expenses based on averages outlined by the IRS for your household size. Food, clothing, health care, housing, utilities, and transportation and other expenses are spelled out. Additional expenses can be listed that are unique or extraordinary to your family, and deductions for debt payments.
Determination of Presumption – The final section will take into account how much disposable income you have left after your expenses are taken into account. Less than $6000 and the presumption does not arise, if it’s more than $10,000 the presumption does arise and you may be forced into a chapter 13 bankruptcy. If it’s between $6000-10,000 and you can pay at least 25% of your unsecured debt then the presumption arise again, if you cannot pay at least 25% then the presumption does not arise.
The bankruptcy means test can be confusing, and bankruptcy trustees can derive numbers differently so it may be helpful to speak to a local bankruptcy attorney that knows how the means test is being interpreted in your bankruptcy court.
