Instructions for the Bankruptcy Means Test
The Bankruptcy Abuse Prevention and Consumer Protection Act became law in 2005. After decades of lobbying, credit card companies convinced legislators that debtors had been routinely abusing the bankruptcy system by having unsecured debts discharged when they had the means to repay their debts. Priority unsecured debts like student loans, child support and alimony could not be discharged, but nonpriority unsecured debt like credit card debt could be. Now, debtors must pass a means test before their unsecured debts can be discharged.
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Things You'll Need
- Financial records
- Calculator
- Census Bureau data
- IRS data
- Administrative expenses multipliers
Instructions
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Instructions for the Bankruptcy Means Test
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Compare state median incomes. Lists of state median incomes can be found on the Census Bureau website. A debtor should go through the U.S Trustee’s website to gain access to the correct list (see the Resource section for a link).
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Calculate monthly income. The debtor should multiply his current monthly income by 12. All income should be included with the exception of Social Security benefits.
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3
Compare incomes. The debtor should compare his family income to the median family income for a family of the same size in his state of residence. If his family income is less than the state median, he passes the means test. If his income is more than the state median, he needs to calculate his monthly net income to determine if he passes the means test.
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4
Calculate monthly net income. Subtract allowed monthly expenses from monthly income. Deductions include living expenses, obtained by referencing the IRS collection guidelines for delinquent taxpayers (see the link in the Resource section); projected payments for 60 months on secured debts; and projected payments for 60 months on unsecured debts.
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Multiply the net monthly income by 60. Sixty is the maximum number of months a debtor would be in a Chapter 13 repayment plan should the debtor fail the means test.
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Compare the numbers. If the debtor’s monthly net income is less than $100, a presumption of abuse never arises. The debtor passes the means test.
If the debtor’s monthly net income ranges from $100 to $166.66, a presumption of abuse arises if the debtor’s nonpriority unsecured debts are less than or equal to $24,000. A presumption of abuse also arises if the debtor’s nonpriority unsecured debts are greater than $24,000, and the $100 to $166.66 amount would be enough to pay at least 25 percent of the debtor’s unsecured debts.
If the debtor’s monthly net income is more than $166.66, a presumption of abuse always arises. In this case, a debtor is not able to discharge unsecured debts.
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Tips & Warnings
Debtors are strongly urged to employ a bankruptcy attorney to limit the possibility of incorrect calculations.
Mistakes could get your case dismissed.
Mistakes could have you repaying your debts in a Chapter 13 plan when you could have qualified for Chapter 7.
References
Resources
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