The Bankruptcy Means Test
The bankruptcy means test is one aspect of the Federal Bankruptcy Act that has been causing confusion for years. Therefore, the aim of this article is to help clear up some confusion by providing a general overview of what the bankruptcy means test is and how it is applied. However, bankruptcy law in the United States is very complicated and anyone with case specific questions should not hesitate to contact a local bankruptcy and debt relief attorney.
What is the Means Test?
In a nutshell, the means test analyzes your income and expenses in order to determine whether or not you are eligible to file for bankruptcy protection under Chapter 7 (the most popular type of bankruptcy for consumers). Chapter 7 bankruptcy is designed to help consumers who truly are unable to repay their debts. Therefore, the means test was added to the Chapter 7 eligibility requirements in 2005 in order to prevent high-income filers from being able to use Chapter 7 to wipe out their debts. Now, high-income filers who fail the means test are generally limited to filing for protection under Chapter 13, under which they are forced to repay a portion of what they owe.
Additionally, it is important to note that some filers are exempt from taking the means test all together. For example, if your debts are primarily non-consumer debts, or if you are a disabled veteran who primarily incurred debt while on active duty or while performing a homeland defense activity, then you can file for bankruptcy under Chapter 7 without passing the means test.
Applying the Means Test
When applying the means test, the bankruptcy court looks at a filer’s average income over the six months prior to filing for bankruptcy and compares this figure to the median income of a household of the same size residing in the same state as the filer. In this way the court assesses whether or not the filer has disposable income sufficient to repay his/her debt. If the filer’s income is lower than the applicable median then the filer has passed the means test. However, if the filer’s income exceeds the median then additional calculations must be conducted.
First, the court will calculate the filer’s “monthly disposable income”. This figure is determined by taking the filer’s average monthly income and subtracting certain allowed monthly expenses (for example, expenses necessary for health and welfare as well as obligations they are legally required to pay). Next, the court will consider the filer’s monthly disposable income and determine whether or not he/she has enough left over to repay a sufficient portion of their unsecured debts. If the court determines that the filer does not have enough disposable income to repay a sufficient portion of their debt then the filer passes the means test.
Are You Considering Filing for Bankruptcy in Iowa?
If you’re considering filing for bankruptcy in Iowa schedule a free no obligation consultation with one of the experienced bankruptcy attorneys of the Noyes Law Office P.C. today. Here at the Noyes Law Office, P.C. we understand how stressful filing for bankruptcy can be so we’ve made it our goal is to make the entire bankruptcy process run as smoothly as possible for our clients. This process starts with a free consultation during which we discuss your financial situation and together explore your legal options, so contact our Fairfield office at (641) 472-3236 today and schedule your consultation.