The Bankruptcy Means Test: Is it going to stop me from filing Chapter 7?

The means test is one of the bankruptcy mysteries our clients ask about most often. The means test was created by the 2005 bankruptcy amendments, and was meant to make it harder for high-income folks to file bankruptcy.

To decide whether clients qualify to discharge their debts in Chapter 7, the courts are concerned with two major questions: 1) Does a consumer have enough assets to pay off their debt? and 2) Does a consumer have enough income to pay off their debt? The means test helps the court answer the second question.

Your attorney will compile the last six months of all income your household has received, and compare it against the median household income of a family your size in your state—for example, as of this post, the median household size for a family of two in Minnesota was $72,734. This information is available on some handy tables on the U.S. Trustee's web site. If your household income is less than the median, congratulations—you've finished the form and you can file Chapter 7!

If your household income is more than the median, you may still be able to file Chapter 7, but there are a whole set of other calculations that your attorney will need to go through involving your monthly expenses to find out. These include some standard expenses that can be found on the U.S. Trustee's web site, as well as some actual monthly expenses. Once you deduct these expenses from monthly income, the goal is generally to have a very low number for your leftover—or disposable—income.

But filling out the means test form requires a whole lot more than just looking up some numbers and plugging them into a chart. First of all, some of the deductions are backward-looking over the past six months. Some are forward-looking. And some are hypothetical (an expense is allowed if you should be spending on it). Also, many of the expenses have rules--you can't take the expense unless certain criteria are met. These rules are based on the Bankruptcy Code and court cases interpreting the bankruptcy law. This is why you'll need a good attorney who knows the ins and outs of bankruptcy, not just someone who will fill out your bankruptcy forms without much legal analysis.

Some cases are exempt from the Means Test, for example, cases where most of the debt is business debt rather than consumer debt, or where the debtor is a disabled veteran or military reservist/guardsman.

These are just the basics. In other articles, we've gone more in-depth so you can understand more about the means test and how you can qualify for Chapter 7 bankruptcy.