Chapter 7 Means Test

Do You Qualify for Chapter 7? – The Means Test

When BAPCPA (the new Bankruptcy law) was passed in 2005, one of the major changes was that people now need to “qualify” to file for Chapter 7 Bankruptcy.  The intent of the law was to stop people from abusing the Bankruptcy law. This site believes that notion is ridiculous, because statistics show that almost all personal bankruptcy filings are caused by circumstances out of peoples’ control (job loss, medical problems, etc.).  Regardless, people filing for Chapter 7 (and their attorneys) have to deal with this new law.  The good news is that most people in need of a Chapter 7 end up qualifying under this new means test anyway.  If your debts are primarily business debts, you automatically pass the means test.

The Means Test Step One – What is Your Income?

See if your “current monthly income” is below the median income level for your household size for your state.  The “Current Monthly Income” is a monthly average of all your income over the past six months.  For example, if you live by yourself and make $1,900.00 per month gross income, and the median income for someone in your state living alone is $3,000.00 per month gross, then YOU PASS the means test, and do not have to move on to Step Two.  If your income is above the median, then you have to move on to Step Two:

The Means Test Step Two – Deduct Allowable Expenses

Step Two:  If you are above the median income, there is still a very good chance you pass the means test.  You just have to do the complex formula to find out.  The formula will list your “Current Monthly Income” from Step One, and then subtract your monthly expenses.  However, some monthly expenses are already in the formula for you.  For example, if you live in Chicago, the government already says what “reasonable” household expenses should be for a person living in Chicago, so that expense is already filled in.  For other expenses, such as your taxes, you put in the actual amount.  Once you have deduced all the allowable expenses, you see if there is money left over to pay creditors.  In general, if there is money left over, then you FAIL the means test.  But if you are in the red (no money is left over – you are underwater), then you PASS the means test.

Do the Means Test with a Bankruptcy Attorney

The Means Test is complicated.  There are a lot of ways to pass even if you think you do not pass.  The court can take into account medical problems, and other special circumstances.  While you can find a Means Test calculator online to play around with, you should get your final answer from a Bankruptcy Lawyer.  Some Bankruptcy Attorneys even get it wrong sometimes, so if one tells you that you do not pass, go talk to another one.