The Chapter 7 Bankruptcy ‘Means Test’

Congress developed the Chapter 7 Means Test as part of the Bankruptcy Abuse and Consumer Protection Act of 2005. The Means Test consists of a form where you enter in information about your pay over the last six months to determine your current monthly income average.

In the next step your income is then compared with the applicant median income for other similarly situated individuals. For example, if you are single then you are compared to other singles, if you are married with kids then your income is compared to families of the same size.

The median income is based on IRS standards.  If your six month average is equal to or less than the IRS median for a family of the same size, then you automatically qualify for a chapter 7 bankruptcy.  However, the test doesn’t end there.  The Means Test also takes into consideration your mortgage and car payments,  your household living expenses, IRS deductions, 401K contributions, and such.

After all these additional expenses, is there still a surplus?  Is there still disposable income that will allow you to make payments toward your debt?  If so, then you will not be able to file a Chapter 7.  You qualify instead for a Chapter 13. In essence, the Means Test takes away the discretion that was previously in the hands of the courts and bankruptcy attorneys.  Congress believes this will prevent the abuses of people wrongly filing for Chapter 7.