- What’s The Means Test?
- Who is Required to Take The Means Test?
- Who is Not Required to Take The Means Test?
- What’s My State Median Income?
- How to Calculate the Means Test
- Why The Means Test Is Still Confusing
1. What is the Means Test?
The Means Test is a complex calculation used by the Bankruptcy Court essentially to remove bankruptcy cases that have been incorrectly filed in chapter 7. If the debtor’s income exceeds his or her state’s median income level for their household, then there is a presumption of abuse of the Bankruptcy Code. If the debtor does not rebut that presumption, then the court will dismiss the case or usually convert the case to a less favorable Chapter 13 repayment plan.
But not everyone is required to take the Means Test, even more, it’s possible to rebut the presumption however this requires a careful factual analysis that is well beyond the general information purposes of this site. Still this we hope to provide you with a useful informational overview of this topic. Please call us for a free consultation or fill out our online evaluation so we can discuss your particular facts in more detail.
2. Who is Required to Take The Means Test?
Individuals debtors with income that is greater than their state’s median income level for their household must take the Means Test.
3. Who is Not Required to Take The Means Test?
- Individual Debtors with Income BELOW the State Median. Such individual debtors do not need to take the Means Test and automatically qualify for a Chapter 7 bankruptcy. However any nonexempt assets are is still subject to liquidation.
- Disabled Veterans. Disabled veterans can also bypass the means test irrespective of their income.
- Active Duty Military Servicemen and Women. Active Duty Military men and woman also do not need to take the means test.
- Business Debtors. While business debtors are not required to take the Means Test, the business itself will usually be shut down and liquidated by the trustee. Any nonexempt assets such as inventory and equipment will be sold off the proceeds will be distributed to creditors.
4. What’s My State Median Income?
You can determine your state’s median family income based on family size at the US Trustee’s Website. In California, the median income figures for cases filed on or after November 1, 2010, are:
| STATE | 1 EARNER | 2 PEOPLE | 3 PEOPLE | 4 PEOPLE * |
| CALIFORNIA | $47,234 | $61954 | $67412 | $77596 |
If your income is below the State’s Median Income for your family size then you can avoid taking the Means Test however you are still subject to liquidation of your nonexempt assets.
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5. How to Calculate the Means Test
FIRST: Determine Your Current Monthly Income (CMI)
Calculate your average monthly gross income over the past six months from all sources (include your spouses’ income in a joint case). Also include the regular contributions made by any other person that contributes to your household expenses, .e.g. family members. But do not include social security.
SECOND: Determine Your Monthly IRS Guideline Expenses.
Next, calculate your monthly expenses using the IRS guideline expenses from the IRS website. Sadly, IRS guideline expenses are grossly below your actual expenses but unfortunately, they’re only considering what they deem necessary expenses and their figures that you must apply to calculate your expenses.
THIRD: Determine Your Qualifying Disposable Income.
Perform the following Calculation using your figures.
Disposable Income = [(CMI) – (IRS guidelines Expenses) x 60]
E.g. 6,000 = [(6000 – 5900) x 60].
FOURTH: Did you rebut the Presumption?
1. If your Disposable Income is less than $7,025, then you rebutted the presumption of abuse so you can remain in Chapter 7.
2. If your Disposable Income is greater than $11,725 then abuse is presumed and the trustee will move to dismiss or convert your case unless there is some special circumstance excusing the abuse.
3. If 7,025 < Disposable Income < 11,725, and you cannot pay more than $25% of your non-priority unsecured debt then you can remain in chapter 7.
If you can pay more than 25% of your non-priority unsecured debt then abuse is presumed and the trustee will move to dismiss or convert your case unless there is some special circumstance excusing the abuse.
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6. Why the Means Test Is Still Confusing
Calculating the Means Test is complicated. If all of the above wasn’t enough, there are lots of other issues to make the means test even more confusing such as what constitutes income, what expenses can you claim, what is considered a special circumstance, and what are non-priority unsecured debts? Call us today and we’ll help you determine whether you qualify for a Chapter 7.
The Bankruptcy Lawyersat California Bankruptcy Relief can help you today. We represent clients who seek bankruptcy advice and look to discharge debt through Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Contact Usand an experienced Riverside Bankruptcy Attorney or Orange County Bankruptcy Lawyer will evaluate your case and review your options.
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