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How The New Bankruptcy Means Test Works

Under United States bankruptcy law, most individual filers must file under either Chapter 7 or Chapter 13 bankruptcy. While in the past, you could choose to file under either system, the new laws enacted in 2005 categorize filers as Chapter 7 or 13 based on their monthly income. For those who are above the income bar which would ordinarily assign them to file under Chapter 13, the Bankruptcy Means Test exists to determine whether they may file under Chapter 7 bankruptcy.

The Means Test

This test is taken by those whose average monthly income is greater than their state's median income level for a family of their size to allow them to file for Chapter 7 bankruptcy. Those whose monthly income falls below the median are automatically set to file under chapter 7.

The test requires you to:

- Calculate your current monthly income

- Subtract expenses allowed by the IRS

- Determine your monthly disposable income by subtracting secured and priority debts

- Determine whether your disposable monthly income exceeds $110 per month but is enough to pay off more than 25% of your non-secured, non-priority debts within five years or is greater than $182.50.

You automatically pass the means test if your disposable monthly income is less than $110, while if your disposable income is greater than $110, you move on to the second part of the test which determines whether you would be able to pay off one quarter of your non-priority and unsecured debts within five years.  

Taking the Means Test

Below we outline the requirements of the Means test. To avoid the hassle of the paperwork and manual calculations, you can use an online means test calculator.

Step 1:  Allowable IRS Expenses

The first step is to subtract the expenses allowed by the IRS from your monthly income.

These include:

- Food, clothing, housekeeping supplies, personal care, and miscellaneous expenses: Use figures published by the IRS unless you can show your actual expenses are more

- Transportation, using IRS figures

- Housing and Utilities:  IRS figures unless your actual energy bills are higher

- Domestic violence: any expenses reasonably needed to maintain the safety of your family and yourself from domestic violence

- Dependant care

- Education. A deduction of up to $1650 per year is allowed

- Taxes, not including real estate and sales taxes

- Mandatory payroll deductions, not including discretionary contributions like 401(k) contributions

- Insurance: Any insurance premiums not covered elsewhere on the form

- Court-ordered payments

- Charitable donations

- Child care payments not including primary and secondary education costs

- Health care expenses not covered by insurance or a health savings account

- Communications. Enter what you spend on internet services, cell phones, and special telephone services.

Step 2:  Calculate You Projected Monthly Disposable Income

This step can be skipped if your monthly disposable income is less than $110; you have already passed the Means test. To determine whether you could feasibly be able to complete a Chapter 13 repayment plan, you will calculate whether your disposable income after the above deductions would be sufficient to repay 25% of your non-priority, unsecured debts within five years.

About the Author

Cecilia Montrose is an office designer. She advocates using a wood filing cabinet instead of sharp metal cabinets in offices, and loves the wood file cabinet and wood lateral file cabinet she uses in her home office.

hi, i checked all of the controls and had them tested all are working fine do you have any other suggestions?

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