Means Test
Changes in the U.S. Bankruptcy Code require debtors to pass a strict Means Test to determine whether they can have their debts dissolved through Chapter 7 bankruptcy or whether they must make payments through Chapter 13.
The first step is to compare the Debtor's income to the applicable median income in his or her state. If the Debtor's income exceeds the median, the Means Test works like this:
- Certain allowable expenses are deducted from monthly income based on IRS standards to determine Disposable Income
- Monthly Disposable Income is multiplied by 60 to determine total Disposable Income over a five year period
- If that number is less than $6,000, there is no presumption of abuse, and the Debtor is eligible (at least, insofar as the Means Test determines) to file for Chapter 7 bankruptcy
- If that number is greater than $10,000, a presumption of abuse arises. However, the Debtor may be able to include additional expenses that decrease Disposable Income
- If total Disposable Income falls between $6,000 and $10,000, that number is compared to the total of outstanding, unsecured, non-priority debts. If the total Disposable Income is less than 25% of those debts, no presumption of abuse arises.
The Means Test as written by Congress is a highly technical, nuanced and cumbersome analysis. Many potential Chapter 7 bankruptcy clients will have concerns about the Means Test and their eligibility to file under Chapter 7. Start Fresh Today offers you a Quick Means Test to use as an initial screening tool. Of course, you'll ultimately have to complete the full analysis, but when you have a prospective client on the phone or sitting in your office for an initial consultation, you may want to make a quick determination about that Debtor's probable eligibility, and the Quick Means Test will help you do that efficiently.
Start Fresh Today is the only solution necessary for bankruptcy lawyers trying to navigate Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) requirements. Our site will help alleviate your concerns about the increased complexity of bankruptcy practice and streamline the new filing process.
In addition to providing the Quick Means Test analysis, Start Fresh Today offers credit counseling certification, debtor education programs and may be able to help you meet due diligence requirements. Also, The Bankruptcy Lawyers Blog is a great way to stay up-to-date on bankruptcy law. The blog is written by Kevin Chern, one of the nation's leading bankruptcy attorneys.