Tag Archive: means test online


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.

In 2005, Congress amended the Bankruptcy Code to include what is now commonly referred as the means test.  The means test is the analysis that is required to determine whether a potential debtor qualifies for Chapter 7 relief or Chapter 13 relief, and even though it is called a test, it is not as simple as filling out a questionnaire to determine the result.

That said, don’t fill out an online means test – chances are the results are wrong, and it may mislead you into thinking no relief is available for you, or that you are qualified to file, when really you are not.  This post will discuss the three step system that the means test uses.

1.  The first step is to determine your income for the last 6 months.  That is all that is relevant…. it doesn’t matter if you made 200K in 2009, if you didn’t make any money in the last 6 months… It is backwards looking, but only to an extent.  The relevant time period is the 6 months prior to filing, not including the month that you are filing in.  So, if you were to file in February, we are looking at August 2009 through January 2010. Once your total gross income for the last 6 months has been determined, you multiply it by 2, to give you a yearly average.  Then you compare your yearly average with the median household income for a household of your size in the county you live in.  This number is determined by the IRS, and the most current listing can be found at http://www.justice.gov/ust/eo/bapcpa/meanstesting.htm

2. If you are under the median household income you qualify for relief under Chapter 7.  You can still file a Chapter 13, provided you have disposable income at the end of the month to make your plan payment, and, if you do go the Chapter 13 route, you have the option of making your plan only 3 years long (instead of the otherwise mandatory 5 years).  Now, typically this is not a problem, but you also need to review your current income and expenses – the expected future numbers so to speak:  If you have a lot of money left over at the end of the month, the US Trustee may argue that you have the ability to repay some of your debts, and your slam dunk 7 gets itself in some trouble.  Your attorney will review this numbers and check the likelihood of a problem for you BEFORE filing, so you know what is ahead.  In my experience, those with an income that is less than the median household income hardly ever run into that problem.  Nevertheless, I always check.

Now, if you are OVER the median household income for a household of your size, not all is lost.  The second step of the means test comes into play, and you may still qualify for Chapter 7.  More on that in my next post.