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Subscribe to this list via RSS Blog posts tagged in Means Test

What is the "Means Test" in Chapter 7?

Posted by on in Chapter 7

The “means test” is a formula enacted into the Bankruptcy Code in 2005. Congress decided that too many Debtors were “abusing” the bankruptcy process by discharging debt that they really could afford to repay.

The “means test” was added to the bankruptcy statute to provide an “objective” method for the Bankruptcy Court to determine which Debtors can repay their unsecured debt (at least in part) in a Chapter 13 case. If a Debtor fails the means test, his Chapter 7 bankruptcy case is presumed to be abusive, and the United States Trustee will seek to have that case dismissed or converted to another Chapter under the Code. Debtors who fail the test would be required either to convert their case to a case under Chapter 13, or pursue non-bankruptcy options.

The way the test works is that all of the gross income coming into the “household” during the six months before the case is filed is added together. Any changes during that period, such as being unemployed, are not generally considered. All income is taken into account, including bonuses, personal injury awards, and the like.

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