The “Means Test” is used by the courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy and can be very complicated if you are not familiar with all of the somewhat convoluted calculations required by the Bankruptcy Code. The Means Test is used to find out whether you have the ability, or “means” to pay creditors.
In Chapter 7 the Means Test is mostly used to determine if filing a Chapter 7 case and seeking discharge of your debt might be an “abuse” of the bankruptcy process. If you try to discharge debt when you can afford to pay it, you may be seen as abusing the process.
Having experienced legal counsel not only makes this process easier, it is almost a necessity. Good legal counsel, like a good accountant preparing tax returns, knows what can and cannot go into the Means Test. That knowledge may make the difference between “passing” and “failing” the Means Test, or the difference between obtaining a Discharge of your debts or having your case dismissed. If you are in Chapter 13 as a result of the Means Test, having an experienced bankruptcy attorney is almost the only way a debtor can prevent overpayment of creditors.
The standards for the Means Test can be complicated, especially when it comes to allowable expenses. In some cases, even determining whether something is “income” can be tricky. Certainly, the timing of filing has a lot to do with this analysis. Also, once it appears that there is a presumption of abuse and a Chapter 7 case appears headed for dismissal, knowing the standards of making that determination are extremely important. It is vital for a debtor that just cannot afford to fund a case under Chapter 13, but appears to “fail” the Means Test for Chapter 7 to have an attorney experienced in this important area.
What happens if you are above the median income but do NOT have money to pay toward your debts? This is where experience with the Means Test is really important. There are not only further calculations that can be done to make Chapter 7 possible, but knowing the intricate details of what expenses are allowed and how “special circumstances” can be applied may allow someone to file Chapter 7 where it looks at first like they would be abusing the bankruptcy process.
A big problem for most consumers is that their household budgets will not reflect the IRS approved numbers. So even if you think you are able to file Chapter 7 because you don’t have any disposable income to spare, the court may rule otherwise and still force you into Chapter 13 because some of your actual expenses may be disallowed.
The Means Test is necessary and, with an experienced attorney helping you along the process, is nothing to be overly concerned about. Yes, it is complicated. It was designed to be complicated and difficult, because the real purpose behind it was to keep people from filing bankruptcy, or to force them into filing Chapter 13. Knowledge is essential in the entire bankruptcy process, especially when it comes to getting past the Means Test.