Bankruptcy Means Test
admin on March 11th, 2009
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The new bankruptcy laws passed in 2005 created several new forms that must now be included in a bankruptcy petition, including the Means Test in a Chapter 7 bankruptcy. The means test is supposed to tell the court whether or not you have enough disposable income left after paying your necessary living expenses to pay at least some amount to your creditors in order to settle your debts, rather than wiping them out. According to the credit companies that lobbied congress for the bankruptcy law changes, most people who file bankruptcy really can afford to pay their debts but they just don’t want to. In the last 3+ years since the bankruptcy law went into effect, we’ve seen this isn’t the case, but you are still required to complete this paperwork as well as the other changes that were ordered like the pre-bankruptcy credit counseling and post-bankruptcy personal financial management courses.
The bankruptcy means test consists of 57 questions about your income and expenses which are then compared to national and regional averages to determine if you make and spend more than most people in your area, as well as what your disposable income is or should be. If most of your debt is not primarily consumer debt, or you are a disabled veteran “the presumption does not arise”, and you do not have to complete the majority of the form. The “presumption” is a nice way of saying whether or not you may be trying to abuse the bankruptcy system. If the presumption does arise at the end of the means test you may be forced to file a Chapter 13 bankruptcy.
The second section will determine your income. You, and possibly your spouse, depending on how you plan on filing bankruptcy, will answer questions on your gross wages, business income, rental/property income, interest/dividends earned, child support, pension and any other income, averaged for the last 6 months. The third section will determine your average yearly income and compare it to the median family income based on the state you live in, and the size of your family. If your income is more than the average for your family size in your state you will have to continue filling out the means test, if it is less than the presumption does not arise.
In part five you will deduct standard expenses for your family based on regional numbers the government has declared as acceptable for your area and family size, including food, clothing, health care, housing and utilities, transportation and other necessary expenses. There is space for you to show that you spend more than the standard amounts, but you must be able to show receipts for these expenses for at least the last 6 months in order to submit that to be considered by the court.
In part six the deductions listed in part five are calculated and used to determine how much disposable income you have left over. If you have less than $6575 a year, the presumption does not arise, if you have over $10,950 the presumption does arise, and if you have somewhere inbetween $6576 and $10,949 you must continue with the means test form which compares the amount of unsecured, non-priority debt you have with your disposable income.
The bankruptcy means test can be intimidating, and can seriously affect your ability to file ch 7 bankruptcy, so you should consult a bankruptcy attorney before proceeding with your bankruptcy filing.
