Bankruptcy Means Test

How the bankruptcy means test is applied in consumer cases

The primary purpose of the bankruptcy means test is to identify persons who are considered to earn excessive income, to prevent these persons from filing Chapter 7, and require 5 year Chapter 13 plans if choosing to file at all.

  • Anyone who earned average disposable income, over the last 6 months, in an amount less than the median level of income reported for state residents by the Department of Justice my file Chapter 7.
  • Persons earning above the DOJ published rate may also file Chapter 7 if their disposable income (after deducting allowed expenses), is less than a two step qualification formula. These formulas incorporate a ratio of disposable income to debts owed.

In practice, with the assistance of a talented attorney, the means test for bankruptcy qualification is widely expected to result in less than a 15% drop in Chapter 7 filings. Several elements of the test formula are subjective, and change monthly in accordance with income received. Any period in which income is not received results in a 17% drop in disposable income, and a corresponding change in qualification.  

Adjustments applying the formula

Adjustments within the means test for bankruptcy can make, or break, a debtor seeking qualification for quick liquidation.  For example, charitable contributions may decrease net disposable income by up to 15%. Debtors may claim this adjustment for tithes, offerings and charitable contributions to religious organizations, if documented. Once documented, tithes and offerings at the same historical level are considered an authorized ongoing monthly expense. Oddly, many expenditures which are essential, such food, shelter and transportation costs to and from work, are capped to a maximum level below a minimum wage existence.

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