The Bankruptcy Means Test

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You may or may not have heard the term “means test” when researching about bankruptcy online or you may have even heard the term when speaking to a bankruptcy lawyer. What exactly is the bankruptcy means test and why should you care? The bankruptcy means test is the starting point to determine if you are eligible for bankruptcy at all and if so, whether you should be filing a Chapter 7 or Chapter 13 bankruptcy. I say the starting point, because it is not the final determining factor on what Chapter you should be filing under. It is just a starting point. It also is not a test in the sense that you are required to take a test but rather it is a calculation. The main objective is to determine whether you have enough income to allow you to pay back some of your debt in a Chapter 13 bankruptcy rather than have it all wiped out in a Chapter 7 bankruptcy. This calculation is done by looking at your average monthly income over the 6 month period of time prior to the month your bankruptcy will be filed in. So if your case will be filed in August, you would figure out your average monthly income for February through July. That number is then compared to what is called the “median income” to see if you are above or below the median income for your household size in the state you live in. If your income is above the median income it is presumed you have “failed” the bankruptcy means test and will be required to file Chapter 13. If your income is below the median income you will be presumed to have “passed” the bankruptcy means test and therefore eligible to file Chapter 7 bankruptcy.

Like I said earlier, this is just a starting point. I have some clients who pass the means test but still need to file Chapter 13 bankruptcy. I also have clients who initially fail the means test who end up being eligible for Chapter 7 bankruptcy. The reason for this is that if you fail the means test you are given another chance to pass. This is done by answering about 40 other questions on the bankruptcy means test that dig deeper into your financial situation. There is a certain way to answer these questions and many people, including bankruptcy lawyers, fill it out incorrectly. In fact, just the instructions on how to fill out the form correctly are 10 pages long.

The main thing to keep in mind is if you have been told you don’t pass the bankruptcy means test, get a second opinion. I have been very successful in helping my clients pass the bankruptcy means test so that they could file a Chapter 7 bankruptcy when they have been told by another attorney that they did not pass the means test and had to file Chapter 13 bankruptcy. This does not happen in every case and every case is different but it happens enough for me to recommend a second opinion.

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