What is the Chapter 7 bankruptcy Means Test?

The Means Test is an eligibility criterion for Chapter 7 bankruptcy. In a nutshell, the test measures whether you have the “means” to pay off your creditors. If you do not pass the means test, you do not qualify for a Chapter 7 bankruptcy, and you will likely need to file for Chapter 13 bankruptcy.

Let’s unpack that. You may pass immediately, based on your income. To measure your “means” your Lewis Labadie attorney will need your last six (6) months’ income for your entire household. If you don’t make enough money, you don’t have the “means” to pay off your creditors. You will pass the test.

If you make enough money, but your expenses are too high, you still may not have the “means” to pay off your creditors. In this case, you will need to provide your attorney records of the expenses you have for your household. After performing a calculation based on federal laws, we can determine whether you pass the test. But if you make enough money, and your expenses are not high enough, you may be required to file for Chapter 13 bankruptcy. However, business owners can qualify under an exemption based on their personal liability for business debts.

Finally, many military personnel and veterans can qualify for bankruptcy under an exemption, too. So, you may not need to pass the average consumer Means Test. Talk to a Lewis Labadie attorney to determine whether you are eligible for a Chapter 7 bankruptcy.

What kind of expenses can I deduct from my income on order to qualify for Chapter 7 bankruptcy through the Means Test?

If your income is too high to immediately pass the Means Test, you may still qualify for a Chapter 7. You qualify for Chapter 7 by deducting expenses from your income to pass the Means Test. This begs the question, what kind of expenses can I deduct from my income in order to pass the means test?

The simple answer is that many ordinary household expenses, like rent, food, utilities, etc., will count towards passing the Means Test. This is why you should not be overly concerned if you have already looked up the data for the threshold household income for passing the Means Test, and you earn more than that threshold.

Your house and car payments, if you are going to keep them, may be deducted. Childcare, insurance payments, and other healthcare expenses are also deductible. Although you cannot discharge your child support in Chapter 7 bankruptcy, you can deduct your child support expenses for the purposes of passing the Means Test. However, expenses for entertainment, like your Cardinals season tickets, are not likely to be deductible for the Means Test.