Chapter 7 Bankruptcy Means Test

When the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005, new laws were created to help prevent what was claimed to be widespread abuse of the bankruptcy system. Credit card companies spent many millions of dollars in lobbying money to help coax the bill along, and there is still debate concerning whether widespread abuse was truly great enough to enough to justify the changes. One of the places the change is felt most is in Chapter 7 bankruptcy, which is where the Chapter 7 Bankruptcy Means Test comes in.

Thanks to the BAPCPA Amendments, it is now harder to declare Chapter 7 bankruptcy. You can’t qualify unless your income is below your state median. This essentially implies that you might have the “means” or ability to pay back creditors if your income is greater than your state median income. Information about current median income amounts is readily available online from the U.S. Census Bureau. If it turns out that your income is greater than your state median, you need to take the means test.

Means Testing and Abuse of the Law

If you are in the right income bracket and do not take a means test, it’s considered abusive of the law and your bankruptcy case will probably be dismissed. The same is true if you misrepresent numbers or simply don’t qualify according to the test, yet you still attempt to file. Courts have very strict rules for qualifying for Chapter 7, so it’s very important to obey all the laws.

What Happens If I Pass or Fail the Test?

While you don’t exactly pass or fail the means test, it determines if you’re eligible for Chapter 7. You could, however, have your case dismissed if you don’t follow the bankruptcy laws and procedures exactly, and there are serious consequences for this described elsewhere on this website. Generally speaking, if you don’t qualify for Chapter 7, you’ll have to file under Chapter 13 instead.

Performing the Means Test

Once you have determined your income, you can either proceed with Chapter 7 bankruptcy, or if your income his higher than the state median, take the means test. The size of your family is one of the factors involved in the income calculation, as are several other things. It can be helpful to speak with an attorney, or you can get non-legal seek advice from www.justice.gov.

Next you must calculate your disposable income and consumer or “unsecured” debts. More information about debts that qualify is available on this website. Calculating your disposable income is something that the form does for you. Your disposable income is basically what is left after all your legitimate expenses are accounted for.

To perform the means test, you’ll be entering your income and expense information, which requires accurate details about your personal records. Other information needed to complete the forms can be found from the Census Bureau and IRS.

See www.justice.gov/ust/eo/bapcpa/meanstesting.htm for details concerning where to get the needed forms and data.

The Department of Justice offers some assistance related to understanding and performing the means test, and they provide an email on their website, but keep in mind that both they, and the clerk of your local bankruptcy court, are prohibited from providing you with legal advice.

Information Needed To Complete the Means Test

The form used for the means test is nine pages long and asks a complete set of questions about your income, expenses, taxes, debts, creditors, and lien holders, among other things related to your finances. Certain expenses are allowed and others are not. Expenses are subtracted from your income. The best way to understand how the form works is simply to read it. It’s item number 22 at www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx.

Among the Many Elements Considered on the Form are:

• Gross wages, salary, tips, bonuses, overtime, commissions
• Receipts from operation of a business, profession, or farm
• Income from rent or real property
• Interest, dividends, and royalties
• Amounts paid in child support and alimony
• Unemployment compensation
• Marital adjustments
• Standard deductions for housing, utilities, and transportation
• Standard deductions for food, clothing, health care, and other items
• Expenses for taxes, insurance, and education

As you can see, the means test form asks for a lot of information, so you’ll need all of your records to complete it. The U.S. Government recommends having a lawyer assist you.