Filing for Bankruptcy: What Is the Means Test?

TRI Writer • November 19, 2019

Kenneth C Rannick PC, Kenneth C Rannick bankruptcy, Rannick bankruptcy attorney, Tennessee bankruptcy attorney, Georgia bankruptcy attorney, Tennessee bankruptcy lawyer, Georgia bankruptcy lawyer, declare bankruptcy in Tennessee, declare bankruptcy in GeorgiaThe bankruptcy means test is in place to determine whether or not a consumer is eligible to file for Chapter 7 bankruptcy. The means test considers different factors, including income, expenses, and family size to determine if you have enough disposable income to repay your debt. The means test was designed to restrict the number of people who file for a discharge of debt through Chapter 7 bankruptcy, but most people pass the means test leaving them eligible to file.

If a bankruptcy petitioner does not qualify for Chapter 7 bankruptcy, they can choose to file Chapter 13 bankruptcy instead. In Chapter 13 bankruptcy, the filer’s debts are restructured, and petitioners agree to abide by a payment plan to pay all or a portion of their obligations off through the bankruptcy court.

Learn More About How the Means test Works:

The bankruptcy Means test has two parts. Both are designed to determine the amount of disposable income available to pay towards debt. The test is for those with mainly consumer debts (i.e., credit card debt or medical debt). When filing Chapter 13 bankruptcy, the Means test is taken into consideration when determining the monthly payment amount.

In the first part of the Means test, household income is compared to the state’s median income. Petitioners will need to gather as much info as they can about their income over the past six months. Filers who are below the median income in their state, are eligible to file for Chapter 7 bankruptcy. The vast majority of potential filers pass the first part of the means test and move on to file for Chapter 7 bankruptcy. Those who do not, move on to the second part of the means test.  Social Security and Veteran’s Disability income is not counted towards current monthly income under the Means test.

In the second part of the Means test, potential petitioners gather information and documentation about their expenses over the past six months, including rent, clothing, groceries, medical costs, etc. These expenses are referred to as “allowable expenses.” The remainder of their income after “allowable expenses” are deducted becomes the specified disposable income amount that the bankruptcy court defines as available for you to pay towards your debt.

When listing “allowable expenses,” be thorough. Do not omit any items or list conflicting amounts for the same expenditure. This type of mistake could cause your case to be thrown out. Be forthright and transparent with your bankruptcy attorney. They don’t know what’s going on in your personal or financial life unless you tell them or provide them with the documentation. Once all the information is available, your bankruptcy attorney will work with you to make sure you have your expenses appropriately documented. If the second part of the Means test determines that your disposable income is low enough, you may be eligible to file for Chapter 7 bankruptcy.

If you decide to file for Chapter 13 bankruptcy, either because you are not eligible to file for Chapter 7 bankruptcy or because doing so will allow you to keep some of your assets, the second portion of the means test will be used to help determine the terms of your repayment plan.

If you need to file bankruptcy, don’t hesitate to call Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. We help good people through bad times.

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