Bankruptcy Means Test_ What is it and Why Does it Matter_

The Bankruptcy Means Test is a tool used by courts to determine whether a person who is considering filing for bankruptcy is eligible to file under Chapter 7 or if they must file under Chapter 13. The test compares the person’s income to the median income of their state, as well as their ability to repay their debts.

 

The Means Test is intended to prevent individuals who have the ability to repay their debts from filing for Chapter 7 bankruptcy, which is a form of bankruptcy that allows for the discharge of most unsecured debts. Instead, these individuals would be required to file for Chapter 13 bankruptcy, which involves a repayment plan where the individual must repay a portion of their debts over a period of three to five years.

 

The first step of the Means Test is to calculate the person’s current monthly income (CMI). CMI is determined by averaging the person’s income for the six months prior to the month in which they file for bankruptcy. This income includes wages, salary, tips, and other forms of compensation, as well as any income from investments or rental properties.

 

Next, the person’s CMI is compared to the median income for their state. If the person’s CMI is below the median income, they pass the Means Test and are eligible to file for Chapter 7 bankruptcy. If their CMI is above the median income, they must continue with the Means Test to determine if they are still eligible to file for Chapter 7.

 

The second step of the Means Test involves calculating the person’s disposable income. Disposable income is determined by subtracting certain allowed expenses from the person’s CMI. These expenses include things like housing, food, transportation, and child care. If the person’s disposable income is below a certain threshold, they pass the Means Test and are eligible to file for Chapter 7. If their disposable income is above the threshold, they must file for Chapter 13 bankruptcy.

 

It is important to note that the Means Test is not the only factor considered when determining eligibility for bankruptcy. Other factors, such as the person’s assets and debts, are also taken into account. Additionally, the Means Test is not always applied in the same way by different courts, which means that the outcome of the test can vary depending on the jurisdiction in which the person is filing for bankruptcy.

 

The Bankruptcy Means Test is important because it helps to ensure that individuals who are filing for bankruptcy are truly in need of financial relief. It also helps to prevent people who have the ability to repay their debts from taking advantage of the bankruptcy system. However, the test can be complex and difficult to navigate, which is why it is important to consult with a bankruptcy attorney before filing for bankruptcy. A bankruptcy attorney can help to ensure that the Means Test is applied correctly and that the person’s case is handled in the best way possible.

 

It is also important to note that the means test is not always used, certain states have opted-out of using it and in case of businesses, it is not used at all. The means test is only used when individuals file for bankruptcy relief.

In summary, the Bankruptcy Means Test is a tool used by courts to determine whether an individual who is considering filing for bankruptcy is eligible to file under Chapter 7 or if they must file under Chapter 13. The test compares the person’s income to the median income of their state, as well as their ability to repay their debts. It is important for individuals to consult with a local bankruptcy lawyer in Alabaster before filing for bankruptcy as the test can be complex and difficult to navigate.



Leave a Reply

Your email address will not be published. Required fields are marked *