WHAT IS THE MEANS TEST?
The chapter 7 Means Test is a system of calculations used by the bankruptcy law to determine if you qualify to file a chapter 7 bankruptcy based on your monthly income. The basics of the test use your gross monthly income from all sources to formulate a monthly average income for each bankruptcy filer. Your income is then compared to a means or median income based on your location. Simply put, if your income is at or below the median income for your location, then you pass the Means Test and may move forward with a chapter 7 filing.
But what happens if you don’t pass the Means Test?
What if don’t pass this test based on gross income requirements? The bankruptcy code allows you to move forward with the next step in the test, which is subtracting qualified monthly expenses from your gross income to help you reduce your monthly income to an amount below the median.
Qualified expenses may include your mortgage or rent, car payments, utilities, food, gas, and other expenses that can be used to determine your actual monthly income. The test wants to determine if you have any disposable monthly income left at the end of the month that could be used to pay towards your debt.
What is disposable monthly income?
Disposable monthly income is any amount of money you have leftover available to you for spending after allowing for all necessary and reasonable expenses. Once you subtract your monthly expenses from your gross income, if an amount is leftover which is enough to justify you to pay something towards your debt, then you do not pass the Means Test.
If I don’t pass the Means Test now, is it gone forever?
If you don’t pass the Means Test now, don’t worry, there are things we can do. We can look for additional expenses that you may not have thought about. We can plan around your filing when your income is low, we can look for additional expenses that you may be incurring in the near future.
There are many options and bankruptcy planning that can be done to help you qualify for chapter 7. However, if all else fails, then you may be looking at chapter 13 bankruptcy.