What Is a Bankruptcy Means Test?

The bankruptcy means test is a test to determine if a person is eligible to file for Chapter 7 bankruptcy. Many filers are required to complete the means test because of the revamping of the bankruptcy system that was passed in the Bankruptcy Protection Act of 2005 by Congress. This test is essentially a way that helps to prevent people who could afford to pay their debts on what income they make from being able to have debts discharged under Chapter 7 bankruptcy, which is known as a liquidation bankruptcy.

Income Considerations

The main factor considered in the means test is a person's income. A person's income from a business, farm, or profession counts as income. A person's wages, tips, salary, bonuses, commissions, and overtime payments count as income. The income a person receives from rental properties, child support, alimony, unemployment benefits, pensions, retirement payments, disability insurance, annuities, Workers' Compensation, interest, royalties, dividends also count toward a filer's income. Any income from Social Security Disability Insurance, Social Security Retirement benefits, tax refunds, Temporary Assistance for Needy Families, and Supplemental Security Income doesn't count as income for the purpose of the means test.

The total of the person's income is checked against the state's median income in order to file for Chapter 7 bankruptcy. If the person's total income is less than the state's median income, the person meets the income requirements and usually won't have to complete other aspects of the means test. It is important for filers to understand that all income, including a spouse's income, is considered for the means test. This is true even if a married person is only filing for an individual and not a joint bankruptcy.

Disposable Income

If a person makes more than the state's median income, he or she might still be able to qualify for Chapter 7 bankruptcy under certain circumstances. The person will have to complete the second portion of the means test. In this portion of the means test, certain expenses are subtracted from the income to determine if the person meets the requirements. To qualify for Chapter 7 bankruptcy in this way, the income left after the deduction of the expenses has to be less than what would be required to complete a repayment plan under Chapter 13 bankruptcy.

Special Considerations

There are some special circumstances that might enable a person who fails the means test to still qualify for a Chapter 7 bankruptcy. If the average monthly income was factored because of a job that was recently lost, that person might still be able to file for Chapter 7 bankruptcy. A serious medical condition or unusually high rent might also result in being granted a Chapter 7 bankruptcy despite failing the means test.

Exemptions to the Means Test

People who are in debt because of operating a business might be eligible for Chapter 7 bankruptcy without having to complete a means test. Certain veterans might not have to take the means test to qualify for Chapter 7 bankruptcy. The veteran must be considered at least 30 percent disabled. Additionally, at least half of the person's debt had to be from a period of active military duty.

Determining if someone meets the requirements for a Chapter 7 bankruptcy can be complicated, especially if the person has an income that is more than the state's median. Because of this, seeking assistance from a qualified bankruptcy attorney can help to figure out which bankruptcy filing is most appropriate.

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