What is a bankruptcy Means Test and how can I fail it? I hear this question often from people who come into my office to discuss filing a bankruptcy case. Prior to the changes in the Bankruptcy Code in 2005, the Means Test did not exist. Creditors lobbied for the Means Test as a way to prevent some debtors from filing a Chapter 7 case to discharge unsecured debts. The theory behind the Means Test is that it would prevent bankruptcy fraud by preventing people who have a certain level of disposable income from filing under Chapter 7 of the Bankruptcy Code.
The truth is that the Means Test has done very little to prevent bankruptcy fraud. It did make filing bankruptcy slightly more complicated at first; however, as attorneys learned more about the Means Test, it simply became another form that is required to be filed with the bankruptcy petition.
How Does the Means Test Work?
The Means Test compares your gross household income to the income of other households of the same size in your county. If your income is below the median income for a household of your size in your area, you “pass” the Means Test and you can continue with a Chapter 7 case. If your income is above the median income, you “fail” the initial section of the test and you must complete the second section of the test.
The second section of the Means Test deducts allowable monthly expenses from your gross income to determine your net disposable income. Allowable expenses include income taxes, health insurance, daycare expenses, medical expenses, food, clothing, vehicle expenses, rent or mortgage payments, etc. Once all allowable expenses are deducted from your gross income, the test calculates your disposable monthly income. If your disposable income is above a certain amount, you will not be eligible to file under Chapter 7 of the Bankruptcy Code. This does not mean that you cannot file for bankruptcy relief. You can still reorganize your debts by filing under Chapter 13 of the Bankruptcy Code.
Hiring an Experienced Bankruptcy Attorney
Completing the bankruptcy Means Test can be complicated depending on your financial situation. It is in your best interest to hire an experienced bankruptcy attorney who is well-versed in the complexities of the Means Test. Calculating the test correctly could mean the difference between filing under Chapter 7 and filing under Chapter 13.
Contact an Experienced Mount Holly Bankruptcy Attorney
Personal Approach, Professional Service, Affordable Payment Plans
The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.