What is the Means Test (Bankruptcy) and How Does It Affect You?

Q: Can I appeal a means test decision?

Yes, you can appeal if you believe the means test was applied incorrectly, but it is advisable to consult with a legal professional for guidance.

Q: How is my income calculated for the means test?

Your income is calculated based on your average monthly income over the six months prior to filing for bankruptcy.

Definition & Meaning

The means test is a financial assessment used in bankruptcy cases, specifically under Chapter 7 of the Bankruptcy Code. It helps determine whether an individual debtor's filing for Chapter 7 bankruptcy is presumed to be an abuse of the system. If a debtor's income exceeds the median income for their state, their case may be dismissed or converted to Chapter 13, which involves a repayment plan. The means test also allows debtors to argue against a presumption of abuse by demonstrating special circumstances that justify higher expenses or adjustments to their current monthly income.

Table of content

Legal Use & context

The means test is primarily used in bankruptcy law, particularly for individuals considering Chapter 7 bankruptcy. It serves as a gatekeeping mechanism to prevent abuse of the bankruptcy system. Legal professionals often assist clients in navigating this test, and individuals can utilize legal forms and templates to manage their bankruptcy filings effectively.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A debtor with a monthly income of $5,000 lives in a state where the median income is $4,500. Under the means test, their case may be presumed abusive, leading to dismissal or conversion to Chapter 13.

Example 2: A debtor can demonstrate special circumstances, such as high medical expenses, which may allow them to qualify for Chapter 7 despite exceeding the median income (hypothetical example).

Relevant laws & statutes

The means test is governed by Section 707(b)(2) of the Bankruptcy Code (11 U.S.C. § 707(b)(2)). This section outlines the criteria for determining whether a debtor's filing constitutes an abuse of the bankruptcy system.

State-by-state differences

State	Median Income	Notes
California	$5,000	Higher median income may affect eligibility.
Texas	$4,200	More lenient means test thresholds.
New York	$5,500	Strict enforcement of means test.

This is not a complete list. State laws vary and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition
Chapter 7 Bankruptcy	A liquidation bankruptcy where the debtor's non-exempt assets are sold to pay creditors.
Chapter 13 Bankruptcy	A reorganization bankruptcy allowing individuals to repay debts over time through a repayment plan.
Abuse	Filing for bankruptcy in a manner that is deemed improper or exploitative, often leading to dismissal.

Common misunderstandings

What to do if this term applies to you

If you are considering bankruptcy and the means test applies to your situation, it is crucial to gather your financial documents, including income statements and expense records. You may want to consult with a legal professional to understand your options fully. Additionally, you can explore US Legal Forms' templates to assist with your bankruptcy filing.

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Quick facts

Typical fees: Varies by attorney and complexity of the case.
Jurisdiction: Federal bankruptcy court.
Possible penalties: Dismissal of bankruptcy case, conversion to Chapter 13.

Key takeaways

Frequently asked questions

What happens if I fail the means test?

If you fail the means test, your Chapter 7 bankruptcy case may be dismissed or converted to Chapter 13 bankruptcy.