What is the means test?
You may have read that the new bankruptcy law imposes a "means test" on who can file for Chapter 7 bankruptcy.
You might think this new test will prevent you from filing. But, chances are, you're wrong. Most people considering bankruptcy have no trouble passing the means test. Indeed, some lawyers think more people will qualify for Chapter 7 under this test than under the old law, where judges had no fixed formula.
Use this calculator find out where you stand.
The law now uses a standard mathematical formula to determine whether you can file for Chapter 7 -- or, to put it in legal terms, whether filing for Chapter 7 would be an 'abuse' of the bankruptcy system. (Those who fail the means test, are left with a Chapter 13 repayment plan as their only bankruptcy option.)
The means test is actually a two-part test and you only need to pass one of them to qualify for Chapter 7.
Test 1. "Median Income"
This is a very simple test that compares your average household income for the past six calendar months to the median income for your state, If your income is below the median, you qualify for Chapter 7. If it is above the median, you must pass Test 2.
Test 2. "Disposable Income"
This test deducts expenses from your income to determine how much you can pay your unsecured creditors over the next five years:
- If you can pay at least $11,725 ($195.42 per month), you can't file for Chapter 7.
- If you can pay at least $7,025 ( about $117 per month) and that is at least 25% of what you currently owe your unsecured creditors, you can't file for Chapter 7.
- If your disposable income is less than $117 per month, you can file for Chapter 7.
Certain deductions are standard allowances based on the number of vehicles you operate, the number of people in your household, and the cost of living in .
In addition, to these standard deductions, you can also deduct the full amount of certain actual expenses such as mortgage and vehicle loan payments.