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Means Test - Do You Qualify to File Bankruptcy?

Last Updated: March 8, 2011

A Means Test is a series of financial tests to see if the consumer qualifies for bankruptcy. This page describes in brief the information you will need to fill out this form. This will identify debtors who have the financial capacity to pay some money to their creditors.

The test will work as follows:

TEST # 1:
Is the family earning above the average income for their state? Here's how you tell - look up the median income for your family here:

http://www.usdoj.gov/ust/eo/bapcpa/bci_data/median_income_table.htm

If the answer is "No" Chapter 7 bankruptcy can be filed!

TEST # 2:
If the answer is "Yes" to TEST # 1 , do you have excess monthly income of more than $166.66/month to pay $10,000 of debt over 5 years?

If the answer is "No" you must answer another question, if "Yes" Chapter 7 bankruptcy cannot be filed but Chapter 13 bankruptcy may be filed!

TEST # 3:
If the answer is "No" to TEST # 2 do you have excess income of greater than $100/month to pay over the next 60 months at least 25% of your unsecured debt?

If the answer is "No" you can file Chapter 7, if "Yes" chapter 7 cannot be filed but Chapter 13 may be filed!

Determination of How Much Money Debtors are "Able" to Put Towards Their Credit Card Debts?
One of the means tests listed above involves how much a debtor can afford to pay towards credit cards. How do you calculate this? The formula is simple:

Income - Living Expenses = Money to be Applied Towards Debts

Unfortunately, though the main formula is simple, how you calculate income and living expenses are highly complicated.

How Do you Prove Income?

You will be required to meet with your creditors to give them a chance to try and get you to make a settlement. This is called a 341 meeting. A 341 meeting is part of the bankruptcy proceedings and happens in court. You or your attorney must attend this meeting.

Debtors filing Chapter 7 or Chapter 13 bankruptcy, must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.

Big problems with this - As you may not be aware, bankruptcy records are public. Do you want your tax returns (part of your bankruptcy records) public?? With identity theft rampant, your name, address and SSN will be front and center to all ID thieves.

What if all of the sudden you lose your job or have a big drastic cut in pay? Your last year's tax returns may not reflect your true earnings.

The IRS Gets to Decide What Reasonable Living Expenses Are
Under the old law, the debtor stated what he though was reasonable and the Trustee would object to anything that seemed unnecessary or extravagant - then the Court would decide what was fair. Under the new law, we will all be told what living expenses are reasonable using IRS guidelines of what the IRS thinks is reasonable.