The Bankruptcy Means Test


In 2005, Congress made a sweeping change to the bankruptcy law. Among the numerous changes was the addition of a Means Test to determine your eligibility to file a Chapter 13 bankruptcy or a Chapter 7 bankruptcy. It would take days and 40 pages to explain in detail the means test, so as a general over view, the Means Test is government figures that take into account the County of your residence and the number of individuals who live in your household (family size) that sets a gross annual revenue amount that would allow you to either file a 3 year Chapter 13 (minimum amount of time in a Chapter 13 is 3 years) or a mandatory 5 year Chapter 13 case and which would determine if one is eligible to file a Chapter 7 at all.

The Means Test is broken down into stages. You are required to provide proof of the last six months of pay. An average income is determined from these pay check stubs or if self employed, from your operating account. Certain income is exempt from calculation such as Social Security payments and unemployment benefits. Once the average income is determined, the government provides a chart that will list how much income a family of your size can make each year. If you are under the amount, you have passed the Means Test and can go forward with filing a Chapter 7 or a Chapter 13 of either 3, 4, or 5 years. Basically, if you pass the Means Test for Chapter 13 purposes, you can decide the length of time of your bankruptcy case. If you are over the amount, you are in a mandatory 5 year Chapter 13.

Now, in a Chapter 7 case, if your income is higher than what the government figure is for your family (household) size, then a twelve page Means Test form must be completed to determine if, after all your deductions are taken in account such as car payments, house note(s), secured debts, tax payments, and numerous other deductions, then upon listing all the deductions, if the number is less than the amount required by the government, you could pass the Means Test and still be eligible to file. As one can see, this is an answer that generally can not be answered without sitting down with an attorney at the firm so the amounts can be calculated. Again, this is an attempt to explain a very complex form that must be completed accurately with the assistance of the client and proof of their earnings for the six months prior to filing a bankruptcy case.