How to Understand the Means Test for Bankruptcy
The means test is a complicated formula to determine whether you qualify to file for Chapter 7 bankruptcy. If you fail the means test, you have to file for Chapter 13 bankruptcy instead. If your income is low enough, the means test is easy. For medium to higher incomes, the means test may be more complicated and you may need some assistance in calculating your total. The purpose of the means test is to calculate whether you have enough money available each month to make payments under a Chapter 13 plan. Therefore, in a complicated, round-about way, the means test decides whether you have enough disposable income each month. If you don't, you will qualify to file for Chapter 7 bankruptcy.
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Things You'll Need
- Income records for the past six months
- State median income
- Means test calculator
Instructions
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Means Test Calculations
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1
Calculate your "current monthly income," which is your gross average monthly income over the past six months. You can do this by adding up your total income over the last six months, then dividing that number by six.
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2
Compare your current monthly income to your state's median income. If your current monthly income exceeds the state median, proceed to Step 3. If your current monthly income is less than the state median, you qualify for Chapter 7 without needing to go on to Step 3. A link to check your state's median income is provided in the Resource section below.
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3
Proceed if necessary to continue taking the full means calculation test. The easiest way to take the test is using an online calculator. A link to an online means calculator can be found in the Resource section below.
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4
Begin taking the test by entering your ZIP code on the first page and pressing the "Go" button. Once you have pressed "Go," the test will begin. You will be redirected to a page that contains information and directions related to your state of residence. Make sure you have ample time to complete the means calculator test before you begin, as this is a far more detailed accounting of your income and assets and requires extensive information.
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5
Once you have obtained your score, if you fail the means test then you do not qualify for Chapter 7 bankruptcy and should consider Chapter 13 bankruptcy instead. The overall purpose of the means test is to limit Chapter 7 bankruptcy to only those who truly cannot afford a Chapter 13 repayment plan.
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Tips & Warnings
Be honest and thorough when making all of the required calculations because a mistake now, could result in your Chapter 7 petition being rejected later. It is better to find out up front whether you honestly don't qualify, before you put a lot of time and money into your Chapter 7 petition.
If you are dishonest on your means test calculation, you will still be allowed to file a bankruptcy petition. This means that, at least initially, the means test is an on-your-honor test. However, later, the court will calculate the means test for you and if you fail, your case will be dismissed, or converted to a Chapter 13 plan.
