Understanding The Means Test And How It Affects Your Eligibility To File For Bankruptcy
The means test is one of the most important forms you can file in bankruptcy. It takes your last 6 months of income and your expenses and determines what type of bankruptcy you will qualify for and what your monthly bankruptcy payments might be (in a chapter 13).
1. Chapter 7 Means Test
In order to qualify for a chapter 7 bankruptcy, you must “pass” the means test. This means you must show that qualify for the chapter 7 based on your income and expenses. The means test will incorporate the median income based on your household size and county you live in. This information is pulled directly from the IRS.
If your monthly gross income is less than the IRS standard then you will qualify and pass the means test.
However, even if your monthly gross income exceeds the IRS standard you can still qualify based on your expenses and allowed deductions. In addition, if 50.01% of your debt is non consumer debt (business debt), then you will not have to do the means test and can qualify for a chapter 7 even if your income is higher than the threshold amount.
2. Chapter 13 Means Test
The Chapter 13 means is very similar to the Chapter 7 means test, however, there are some major differences. A Chapter 13 means test is going to determine what your “disposable income” is. This number is the income remaining after your allowed expenses are taken into account. In a chapter 13 you have to pay your monthly disposable income into the plan. The monthly disposable income is paid to your unsecured creditors. The chapter 13 means test also allows you to get an allowed deduction for any retirement/401k withholdings (you don’t get this deduction in a chapter 7).