The Bankruptcy Means Test
When a person files for bankruptcy, he or she must pass the bankruptcy means test to qualify for a Chapter 7 case. The means test is a formula applied to your income and expenses that determines whether you have enough money to repay creditors in a Chapter 13 repayment plan. The means test was created by Congress in 2005 to reserve Chapter 7 bankruptcy for those who truly cannot afford to repay their debts. This does not mean you have to be penniless to file Chapter 7 bankruptcy. You can have a significant income and still have a lot of expenses such as a high mortgage payment.
Talking to Boston bankruptcy lawyer Tameka Grantham is important if you want to find out how the means test may affect you. An attorney can explain the means test and can help you take the test by properly representing your income and expenses.
How Do I Pass the Means Test?
The means test consists of two parts.
Part One of the Means Test
The first part of the means test is an evaluation of your income compared to the median income for the state. If you make more than the median income, you will proceed to the next part of the means test. If you make less than the median income, you will have passed the means test and will not proceed to the next part.
The income calculation includes the following sources:
- Wages, salary, tips, bonuses, overtime, and commissions
- Gross income from a business, profession, or farm
- Interest, dividends, and royalties
- Rental and real property income
- Regular child support or spousal support
- Unemployment compensation
- Pension and retirement income
- Workers' compensation
- Annuity payments
- State disability insurance
- Excluded income includes tax refunds, Social Security retirement benefits, Social Security disability insurance, Supplemental Security Income, and Temporary Assistance for Needy Families.
Part Two of the Means Test
The second part of the Chapter 7 means test is an evaluation of your disposable income. Disposable income is calculated by deducting all allowed expenses including standardized (or regular monthly) expenses. If your disposable income is enough to pay a portion of your unsecured debt in a Chapter 13 repayment plan, then you will not qualify for Chapter 7. However, sometimes special circumstances such as recent unemployment, high rent, or a serious medical condition can allow a person to pass who would not ordinarily qualify.
- 1 person household – $47,176
- 2 person household – $55,291
- 3 person household – $71,416
- 4 person household – $85,157
- Add $6,300 for each person in excess of four
Please note that these amounts are subject to change. Click here for the most recent figures.
If you do not pass the means test, you may file for Chapter 13 bankruptcy, which will place your debt in a repayment plan.