The Means Test

What is the Means test?

The “Means Test” was designed to limit the use of Chapter 7 Bankruptcy to those who truly can’t pay their debts.

The bankruptcy “means test” is a mathematical calculation that determines whether your income is low enough for you to file Chapter 7 Bankruptcy. It’s a formula designed to keep filers with higher incomes from filing for Chapter 7 Bankruptcy. High income filers who fail the means test may use Chapter 13 Bankruptcy to repay a portion of their debts, but may not use Chapter 7 Bankruptcy to wipe out their debts altogether. Only bankruptcy filers with primarily consumer debts, not business debts, need to take the means test.

How Does the Chapter 7 Means Test Work?

The “Means Test” starts with a debtor’s current monthly income (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly “disposable income.” To take the means test, you must first determine whether your income is more or less than the median income in your state. If you earn more than the median, you must figure out whether you would have enough left over, after subtracting certain expenses, to repay some of your debt.

The formula takes away the proper IRS living expenses, alimony, child support and projected Chapter 13 administrative expenses health insurance, disability insurance, etc. Reasonable charitable contributions are allowed as deductions.

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