What is the Means Test?

The means test is the subject of many court cases, and a detailed explanation would take many pages. In short, the means test was enacted by Congress in 2005 as a way to determine if a person with primarily consumer debts is eligible to file for chapter 7 bankruptcy, or, if not, to determine the minimum amount of general unsecured debt that would have to be repaid if a chapter 13 bankruptcy is filed.

There are, of course, many other considerations before deciding if a person should file a chapter 7, a chapter 13, a chapter 11 or any bankruptcy at all. But looking strictly at the means test we begin with an analysis of the Debtors gross (pre-tax) household income, from all sources (except social security) received in the 6 months prior to the month of filing. If the monthly average of that income is less than the state’s median income for the Debtors family size, then there is a presumption that the debtor is eligible (based upon income only) to file a chapter 7 bankruptcy. If the household income is more than the state median,then an analysis of the Debtor’s allowed monthly expenses is made to determine if, after factoring in those allowed expenses, the Debtor would have any money left over each month to fund a repayment plan. If there is enough money left after these expenses are taken into account, then there is a presumption that the Debtor is not eligible for chapter 7 and must file a reorganization and pay back some or sometimes all debt. This typically means that the Debtor will file a chapter 13, assuming that they are otherwise eligible for that chapter. There are, as always, exceptions. For instance, a Debtor who passes the means test but has recently obtained a high paying job may still not qualify for a chapter 7. On the other hand, a person that does not pass the means test might have special circumstances that would nevertheless allow the filing of a chapter 7. These are issues that you would want to consult a lawyer to resolve, And as I stated there are other factors to review such as assets you might lose, debts that you are required to repay, mortgages that you might want to eliminate, and so on before deciding if (and which chapter) you should file.