Means Test

The Means Test

The BAPCPA required that everyone who files bankruptcy complete a Means Test.  This is not like having to take SATs; it is a formula.  It is like having to complete a tax return.

Like tax returns, there is a long form and a short form approach.  While the same form is used, if you make less than median income ($49,182 for a single person, $65,097 for a family of two, $70,684 for a family of three), you only have to complete the first page and a half of nine pages.

The means test numbers are gross income numbers and various items are subtracted.  Some numbers that are subtracted are actual numbers (such as a house payment).  Other numbers are based on the expenses that the IRS uses in the valuating of an offer and compromise.

Purpose of the Means Test

The stated purpose of the means test to determine “projected disposable income”, that is the amount that you have left to pay your unsecured creditors (credit cards, doctor bills, payday lenders, etc.).

For below-median income debtors, the means test means they have almost an express lane into bankruptcy.  For below-median income debtors, the 2005 Bankruptcy Act largely means nothing more than doubling the amount of paper.

For above-median income debtors, some cynical observers have suggested that the means test was designed to divide the debtor’s income between secured creditors and unsecured creditors and make the cost of bankruptcy higher.

Means Test Hypothetical

Rick and Susan Smith and John and Mary Brown live next door to each other.  Both families have gross family income of $100,000.00.

The Smiths rent and pay $2,000.00 in rent.  The Browns have three deeds of trust and their monthly mortgage payment is $3,500.00.  The Browns own two cars that are paid for.  The Smiths own one car on which they owe $30,000.00 and one vehicle which is free and clear.  The Browns would be Chapter 7 eligible.  The Smiths would have to file a Chapter 13.

What are my options if I don’t “pass” the Means Test?

Failing the means test does not make bankruptcy impossible.  There are several options. Talk to me about ways to still file bankruptcy.