What is the Means Test?
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), was designed to keep people with higher incomes from filing for Chapter 7 bankruptcy. The means test checks your income in order to determine your eligibility to file for bankruptcy.
One of the first steps you must take when filing for a Chapter 7 or Chapter 13 or bankruptcy is to complete a "means" test. You must submit either a Form 22A (for Chapter 7) or a Form 22C (for Chapter 13) to the Bankruptcy Court before the Bankruptcy Court will hear your case.
How Does the Means Test Work?
If your income is below the median income for your state, then you can file for Chapter 7 bankruptcy without any problems. Note that the median income depends on the size of your household. The bigger your household, the larger your income is allowed to be. A table of median incomes by state can be found on the website for the Department of Justice.
However, if your income is above the state average, the calculations for the means test become more complex. The means test looks at your disposable income (the amount left over after paying your expenses). There are three possible outcomes:
- If your income is under $117 per month, you will pass the means test and qualify for Chapter 7 bankruptcy.
- If your income is over $195 per month, you will fail the means test. You should file for Chapter 13 bankruptcy instead.
- If your income is between $117 and $195 per month, multiple your income by sixty (60). If the number you got can cover at least 25% of your debt, you will fail the means test. If not, you will qualify for Chapter 7 bankruptcy.
Where does sixty (60) come from in that last outcome? The BAPCPA assumes that the debtor will have five years to pay off the debt if the debtor can pay at least 25% of the debt. There are sixty months in five years. Note that the means test is not a payment plan. Five years is only an estimate that the means test uses to screen out certain debtors.
If I Pass the Means Test, Do I Automatically Get Chapter 7 Bankruptcy?
No. The means test is only one requirement the BAPCPA imposes on debtors filing for Chapter 7 Bankruptcy. The debtor must still attend mandatory credit counseling and the judge still has the discretion to dismiss the case if the judge believes that the debtor is filing in bad faith.
Do I Have To Take the Means Test if I am Converting into Chapter 7 from Another Type of Bankruptcy?
Just as some debtors can convert from a Chapter 7 bankruptcy into another type of bankruptcy, debtors can also convert into a Chapter 7 bankruptcy. The courts are currently divided on the issue. Some courts will follow the text of the BAPCPA and rule that it is not necessary for debtors converting into Chapter 7 to submit a means test.
Other courts will hold that everyone attempting a Chapter 7 bankruptcy must submit a means test, regardless of whether they file for or convert into a Chapter 7 bankruptcy. Letting some debtors in without screening them first would be unfair for other debtors and would defeat the intent of the law.
Do I Need a Lawyer?
No matter how the means test turns out, it is a good idea to hire a lawyer to help you with your bankruptcy. Even if you qualify for filing a Chapter 7 bankruptcy, it may not be in your best interests to do so. A qualified bankruptcy attorney can help you make the right decision on filing, and make sure the entire process is a successful one.