The “Means Test” – What It Really Means
We would like to deconstruct one of the misconceptions in filing for Chapter 7 Bankruptcy under the “The Means Test”. The “Means Test” was designed to limit the use of Chapter 7 bankruptcy to only those who truly can’t afford to pay their debts. The bankruptcy “Means Test” determines whether an individual’s income is low enough to file for chapter 7 bankruptcy.
Though it was created to keep those with higher incomes from using this specific form of bankruptcy, it by no means requires that individuals be completely insolvent. Despite substantial monthly earnings you may still qualify for Chapter 7 bankruptcy if you have a significant amount of monetary monthly expenses, resulting in minimal “disposable income” per month. The higher your disposable income, the more likely you will not be allowed to use Chapter 7 bankruptcy.
So how do skilled bankruptcy lawyers administer the “Means Test”?
One must first determine whether your monthly income is more or less than the median household income in your state. You can do this by subtracting your monthly expenses such as mortgage payments, car loan payments, child and/or elderly care from your current income. Despite substantial monthly earnings you may still qualify for Chapter 7 bankruptcy if you have a significant amount of monthly expenses with next to nothing in “disposable income” per month. If your monthly income is less than the median income for a household in you state, you have passed the test. If your current monthly income is more than the median, you must figure out whether you would have enough disposable income, after subtracting your expenses, to repay some of your debt.