A debtor filing bankruptcy may file under one of several bankruptcy chapters. Most individual debtors file either a Chapter 13 or a Chapter 7 bankruptcy. In order to file a Chapter 7 bankruptcy a debtor may have to complete the bankruptcy “means test.” The calculations involved in the means test are complex and should be done by an experienced bankruptcy attorney; however, some general information about the means test may be helpful if you are considering bankruptcy.
Additionally, there are exceptions where the “means test” does not apply and will not be completed as part of a chapter 7 bankruptcy filing. For example, if a debtor’s debts are primarily business debts, the “means test” will not apply.
Why is the Means Test Used?
Unlike other chapters, a Chapter 7 bankruptcy allows the debtor to discharge, or eliminate, most of his or her debt without repaying any of it. The “means test” was developed as a way to determine if a debtor has the financial means to repay at least some of his or her debt or is truly unable to do so. A debtor who does not qualify for Chapter 7 bankruptcy under the “means test” may ultimately have to file bankruptcy under another chapter.
How Does the Means Test Work?
The “means test” compares your income to that of other similarly situated households in your state to determine if there is a “presumption of abuse.” In other words, would it be an abuse of the system to allow the debtor to discharge their debts? If a “presumption of abuse” is found and cannot be rebutted, you will likely have to file under another chapter. If your income is below the median for your area, there is no “presumption of abuse.” If your income is above the median for your state, then the test goes on to evaluate your income and expenses to determine if there is a still a “presumption of abuse.”
The bankruptcy attorneys at The Sader Law Firm can help you complete the bankruptcy “means test” and evaluate if bankruptcy is appropriate for your situation. Give us a call at 816-281-6349 for a free consultation.