Understanding the Means Test

By: Justin M. Kincheloe, Esq.

Filing bankruptcy became a bit more complicated after the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Namely, this change to the bankruptcy laws implemented the “Means Test.” The Means Test creates a formulaic approach to determine whether an individual filing for a Chapter 7 bankruptcy is eligible for relief and is not abusing the bankruptcy process to get out of debt.  At the heart of this change is Congress’s intent to prevent debtors from filing Chapter 7 when the debtor might have the economic means to pay a meaningful percentage of the debt.

There are three ways to be exempt from the Means Test: 1) you are a disabled veteran who primarily incurred your debt while on active duty or performing a homeland security activity 2) more than half of your debts are business related (i.e., debts not incurred for personal needs); or 3) you were on active military duty or engaged in a homeland defense activity for at least 90 days after 9/11/2011 and you filed bankruptcy within 540 days of such service.  If you do not fit into one of these three categories, then you must complete the Means Test.

The first step in the Means Test is calculating your average gross income over the 6 months prior to filing your case.  If your income falls below the median income in your area based on your household size, then you automatically pass the Means Test and may proceed under Chapter 7.  If your income falls above the median income, then you must complete the remainder of the Means Test.  This involves taking your average gross income and deducting certain allowed expenses.  If the end result is about $200 or less per month, then you may likely proceed under Chapter 7.  If the end result is higher than that, then a presumption of abuse arises and you may have trouble receiving a Chapter 7 discharge.  Your other option would be to file a Chapter 13 bankruptcy and proceed with a debt reorganization.

Attorneys and non-attorneys alike sometimes struggle with Means Test calculations.  That is why it is always a good idea to consult with a knowledgeable attorney when filing bankruptcy.  For more information about the Means Test or any Bankruptcy related issues contact our experienced attorneys at Thompson Steinberg.

Justin M. Kincheloe, Esq.

P: 951-359-1209 x202

E: justin@tsattys.com

W: www.tsattys.com

Justin Kincheloe is a partner and co-founder at Thompson Steinberg.  He is licensed to practice in California and has been practicing consumer bankruptcy law for over three years.  Mr. Kincheloe was born and raised in Des Moines, Iowa before moving to California.  He is an avid sports fan and has a real passion for music.

**The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This blog posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.**


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