What is the means test?

As I take down my website I thought this information from my website might be of help for general information:

The new bankruptcy law creates a “means test”. The theory of the means test is that there is a formula to compare your income to your expenses to determine if you can pay something back to your creditors. If you can make some payments to your creditors, then you cannot file a chapter 7 bankruptcy and you must file a chapter 13 payment plan bankruptcy. The vast majority of individuals will be eligible to file a chapter 7. The new means test does not prevent a Chapter 7 for most people, and the new law is not as bad as it sounds for most debtors.

The first step of the means test is to analyze your income. Congress has determined the method. We must look at your income for the 6 months prior to filing your case. The average of these 6 months times 12 is used to determine your annual income. This can create a number that is not realistic(depending on seasonal pay, bonuses, period of unemployment), but it is the number that we must use.

The second step is to compare this artificial “current monthly income” to the median income of Florida based on the number in your household. See median income table. If you are below the median income, then you “pass” the means test and can file Chapter 7. (There are unanswered questions still to be resolved. Can you define the number in your household? Sometimes it is easy, but with extended families or roommates living in the same residence, the answer is not clear as to how we will measure the size of your household. This will be a planning issue with your attorney.)

Even if you are substantially above the median income, you likely will still be eligible for a chapter 7. The means test allows certain reductions to your gross income. Payroll taxes, secured debt for your home and vehicle, allowed budget credits set by government guidelines such as for rent, food and clothing, and other reasonable and necessary expenses can be offset. Jeffrey Solomon will prepare the means test for you.

If the means test shows you have excess income, even as little as $100.00 per month, then you would not be eligible for a chapter 7 unless there are what is called special circumstances. A chapter 13 payment plan bankruptcy can then be filed. You would make one payment per month to a bankruptcy trustee who would pay your creditors. You might only have to pay a very small percentage of your debt. There are other advantages to a chapter 13 which might make it preferable to a chapter 7. These should be discussed with your attorney.

You will need to obtain records of your income for the last 6 months. All paystubs or other records from the employer will be necessary to verify income. All bank statements for the 6 months and other account statements such as from brokerage accounts will be needed. Greater detail will be needed if you are self-employed to determine the net income for the 6 months.



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