The Means Test

Beginning with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, new bankruptcy laws require a consumer to meet certain qualifications to be eligible to file a Chapter 7 bankruptcy.

The new law requires the attorney to evaluate each consumer on a case by case basis, and compare that person’s gross annual household income to the gross median annual income for a household of that size in the same state. The test looks at the last six months of pay advices, social security, retirement income, alimony received, and the like to determine your annual income.

If your household makes less than that median income, you are presumed to qualify for a chapter 7 – no “presumption of abuse” arises. If you make more than the median income, you or your attorney will be required to complete a “means test.” The means test considers deducts standard expenses of the average consumer from your income as calculated by a specific formula. These expenses can include housing, car payments, income tax, utilities, and mandatory union dues. Once the full test is complete, you will know if you are presumed to qualify for a Chapter 7 liquidation form of bankruptcy.

If, upon completion of the test, you do not qualify for a Chapter 7, you may instead choose to file under Chapter 13, which is a repayment plan form of bankruptcy. The means test must be completed for every Chapter 13 bankruptcy, and helps you and your attorney determine what your monthly payment will be.