Tag Archive: chapter 7 chapter 13


As I previously discussed, the means test plays a major role in determining whether a person is eligible to file for relief under Chapter 7 – the liquidation bankruptcy.  However, if you are looking at filing a Chapter 13 reorganization bankruptcy for whatever reason, the means test still plays a role in your Chapter 13 bankruptcy.

The means test form used in a Chapter 13 is slightly different than the one used for a Chapter 7, but the same basic rules about determining your income and taking expenses still applies.  There are some more restrictions as to which expenses you can take, but that is what your attorney needs to worry about. 

Now, each jurisdiction uses the means test slightly differently, so if you are looking for file for bankruptcy outside of Arizona, this blog posting will likely not give you the information you need.  I help people get relief under Chapter 13 bankruptcy in Arizona only, and cannot speak to systems outside of this state.

Basically my goal when doing the means test for your Chapter 13 is to minimize your disposable income.  In Arizona, we determine your plan payment based on your Schedules I and J. Basically we take your current monthly income, minus your current monthly expenses and see what is left over.  However, there is a provision in the bankruptcy code that says, essentially, that the plan cannot be confirmed unless your unsecured creditors get at least as much as your means test shows you have left over at the end of the month.  Depending on your circumstances, that can be an unsurmountable issue.

In short, the means test can still play an important role, even in a Chapter 13 bankruptcy, and you should have a knowledgeable attorney assist you through the process.  Chapter 13 bankrutpcy filings are pretty complex, and while it may seem counter-intuitive to pay an attorney to help you ‘go bankrupt’ – we can help you avoid losses and other problems that you may not be aware of otherwise.

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After determining your household income, and realizing that you ‘fail’ the means test because, unbelievably, you make ‘too much money’, not all hope is lost.  There is a very important second step to the means test, that may still allow you to get a fresh start in a Chapter 7 bankruptcy, rather than struggling through a Chapter 13 repayment plan.  In this second step, we take your gross monthly income, as determined during the first step, and take out certain expenses. For one, we get to deduct all the taxes that you pay, so we finally get to work with net income.  We then deduct living expenses.  Absent unusual circumstances,  we are unfortunately limited to what the IRS determines to be the average monthly expense for a household of your size for food, housing, transportation etc.  but sometimes special circumstance exist, and we can show the court why you need to have an additional monthly expense allowance for one of the categories. 

After we take these statutorily determined expenses, we then look at your other monthly expenses.  For example, do you have children in school under the age of 18?  Deduct $137.50 per child.  Do you have life insurance? Deduct your life insurance.  Do you pay real estate taxes?  Deduct your real estate taxes.  There are quite a few more of these categories – most of them a bit difficult to decipher even for an attorney, but they are there, and an experience attorney will get you every deduction you qualify for.  This is another reason why you should not rely on online forms to complete the means test for you, or document preparers.  Most of those guys will run the basic test, maybe check the set deduction, and then send you down the path to a Chapter 13 without even checking for any other deductions that are available for you.   Finally, if you have any secured debts (think house with a mortgage, car with a car loan) or any tax debts we also get to deduct a set monthly amount for your expenses connected to that. 

Once all that is said and done many potential clients that thought they had not options other than a Chapter 13, all of the sudden have all sorts of options… They can get their fresh start right away – stop worrying, and move on with their lives, and all because someone actually took the time to calculate their eligibility.  Or if their budget allows, they can choose to be in a Chapter 13, but how the means test works there is quite another story.  If you think you might need to file for bankruptcy relief, and you want to find out more about it, keep on reading, do your research, and then call a lawyer.