What Does the “Means Test” Mean?

The Bankruptcy Code was amended in 2005, implementing numerous changes. One of the additions was the “means test,” which an individual must pass in order to qualify for a Chapter 7 filing. The means test is actually a mathematical formula that the court applies to your finances. You are allowed to file a Chapter 7 case if you pass the test. If you fail the means test, your filing is given a “presumption of abuse” designation and it becomes your burden to overcome this label.

Each state has a “median income” for the applicable size of your household. If your income is lower than your state’s median income, the means test is not applied. Also, if you are a disabled veteran or the majority of your debt was incurred while you were serving on active military duty or if the majority of your debt is “non-consumer” debt (i.e. tax or business related debts) , the means test is not applied.

The test is applied to individuals whose income exceeds their state’s median income. The means test includes deductions for certain expenses, including your living expenses and other designated costs. Once these deductions have been made, the remaining amount is multiplied by 60. If the amount left is $6,000 – $10,000, and it amounts to at least 25% of your non-priority and unsecured debt, you do not pass the means test and your filing is presumed an abuse of the Chapter 7 bankruptcy system.

In a case where the “presumption of abuse” is assigned, the debtor has the opportunity to object to the designation. The debtor can submit evidence proving special circumstances that should permit you to file a Chapter 7 even though your income falls within the abuse range. If you overcome the burden of proof and the court agrees that your individual situation warrants a Chapter 7 filing, your case can continue as filed.

Contact an experienced bankruptcy attorney at Nielsen Law Group today to assist you in determining your eligibility for Chapter 7 bankruptcy. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.