THE MEANS TEST AND CHAPTER 7 BANKRUPTCY
In some cases, the means test determines who can file for complete debt forgiveness through Chapter 7 bankruptcy. Chapter 7 eliminates most unsecured debt. Chapter 13 requires a long-term, partial repayment plan for those debts.
IS IT REQUIRED?
Most people are NOT required to complete the means test. The means test won’t be used if your income is below the state median income for your household size. The state median income is a figure the Census Bureau publishes about every 6 months. It varies slightly each time, but not much.
The following are approximate, rounded off amounts for Florida. For a household of one, it’s $43,000 per year. In a household of two, it’s about $53,000. A household of three is $57,000. Finally, a four person household’s median income is about $66,000. For each additional household member, you add $8,400. Only if your income is above these figures does the means test comes into play.
HOW IT WORKS
The means test is designed to see if you have the “means” or “ability” to make payments on your debts over time. If so, you can still use the Bankruptcy laws, but only under Chapter 13 (partial repayment plan). It takes into account your income, expenses, and family size to determine whether you have enough disposable income to repay your debts. Most people who take the means test pass it easily. Your attorney often knows whether it’s worthwhile to try. In other words, the vast majority of people taking the means test do NOT have to file Chapter 13 and still qualify for Chapter 7.
For your expenses, the numbers are based on your actual expenses for certain items, such as mortgage payments and car payments. Other expenses are what the government “thinks” it should cost for certain items. These items typically include food and clothing.
If your disposable income is shown to be low enough, you still qualify for Chapter 7 at this point.
WHAT TO DO
If the means test shows you do not qualify for Chapter 7, there is no appeals process, but that doesn’t mean Chapter 13 is your only option, provided you can hold off on filing for a while.
Remember, the income and expenses you use to fill out the means test reflect your financial situation for the past six months. You can take the test again every so often. Based on a change in your income or expenses, or a change in the census bureau figures (new figures are published every 6 months) you may qualify for Chapter 7 at that time.