Means Test
Means Test How to file for Bankruptcy
The means test calculates whether a person should file bankruptcy as a Chapter 7 or Chapter 13 and suggests what the amount of a Chapter 13 monthly payment should be. If more than 50% of your debt is business related the means test does not apply to you and only Schedule I and J are used to determine if you should file a Chapter 13. Your cash flow budget under schedules I and J should normally agree with the means test and also suggest the amount of any Chapter 13 payment, and whether or not to file as a Chapter 13.
Don’t attempt to calculate a means test yourself. Most attorneys have to use software to calculate the means test. If you come to your free consultation with your income information an attorney should be able to estimate the means test and whether to file as a 13 or a 7.
The means test has 2 parts. First, if your family income is under the average income for your size household you automatically pass the means test. It is presumed you may file as a Chapter 7 and there is no further calculation. The means test averages a Debtor’s past six months income to obtain a monthly and annual estimated income. It then compares that income to the median income for households of the same size in the debtor’s state of residence. Household income is used for the means test even if you are married and filing individually.
In the second part of the means test, if your income is over average you may deduct for reasonable, required and necessary expenses. This includes reasonable home and auto payments, day care, health and life insurance, child support and alimony payments, medical care etc. Charity, retirement investment and school tuition are allowed but require documentation and a history of contributions. However a debtor may not deduct the mortgage payment for a 750,000 dollar home if they only make $100,000 a year and file Chapter 7 by calling the deduction reasonable. The US Trustee audits these means tests for reasonableness and accuracy.
If the debtor can pay $10,950 in five years or as little as $182.50/month to creditors, he must file as a Chapter 13 and filing as a Chapter 7 is presumed abusive. These 2010 amounts increase with the cost of living. A presumption of abuse can be rebutted by the debtor showing other facts and circumstances. “Special circumstances” can include recent unemployment, disability, or retirement which shows the means test misrepresents the actual ability to repay.
Attorney Nick C. Thompson Louisville Kentucky Bankruptcy Means Test
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