Bankruptcy – What is the Means Test?
“What is the bankruptcy means test?”
I field this question at least a few times a week in my offices in Dalton, Dallas, Cartersville and Rome GA.
In October 2005, Congress added the means test to the bankruptcy laws to try to push high income debtors out of Chapter 7 and into Chapter 13.
Here is how it works. The first step is for us to determine if your gross taxable income for household family of your size exceeds the median income for family in your area. Even if your spouse is not filing bankruptcy with you, their gross income must be included in the calculation.
The six month consideration period is the six calender months that precede your filing date. For example, if your case was filed on January 1st, the months that will be considered are June, July, August, September, October and December. If you have recently received a large bonus at work, this may skew the numbers against you. In contrast, if you have been unemployed for a large part of the six month consideration period, this may skew the numbers in your favor.
If your gross income is less than the median income for a family of your size, you may be eligible for Chapter 7 bankruptcy. On the other end of the spectrum, if your income is significantly over the median income for a family of your size, you will not be able to file Chapter 7 but may be able to file a chapter 13 bankruptcy. The more money you make results in a higher required Chapter 13 payment.
For over-median debtors, there are some deductions that we can take which will lower the required Chapter 13 payment. For example, we can deduct the average amount of state and federal taxes that you have paid during the six month consideration period. Also, we can deduct the six month average of the amount of money that you have donated to a charitable organization such as a tithe. If you have a car loan, this will add another deduction. Child support and daycare expenses can also be deducted.
If you are over median and file chapter 13, your case will run for a period of sixty months.
As you can tell by reading this article, the means test is not simple. Since there are exceptions to some of the rules, you need to meet with a qualified bankruptcy attorney to tell you how the means test will impact your bankruptcy options.