The bankruptcy abuse Prevention and Consumer Protection Act of 2005 introduced a “means test” to bankruptcy law. This test will tell you whether you are likely to be able to file a chapter 7 bankruptcy case where you get rid of most debts, or if you will be forced into a chapter 13 case where you repay some of your debt over time.
It is important to remember what the means test is not. The means test does not prevent you from filing bankruptcy. The means test creates only a presumption that you cannot proceed under chapter 7 for those filers who “fail” the means test. It is possible to file for chapter 7 bankruptcy even if your income puts you over the presumptive limits for chapter 7 cases. This can be done for any number of reasons, such as a change in income that is about to incur, or illness. In a chapter 13 case, the means test also has an effect on your presumptive plan payment and the length of your plan.
The means test uses average income and allowed expenses to make the chapter 7 vs chapter 13 determination. In certain cases, like with car payments and mortgage payments, people use their actual expenses as deductions. In other types of expense, such as the household food budget people must use average expenses. Your average income is based on the prior six months of income though certain types of income like Social Security are excluded.
You do not have to complete the means test at all if you are a disabled veteran who incurred most of your debt while in service or if you have mostly non consumer debt, such as business debt. It is also advantageous to have more persons who are dependents living in your home. If married and not separated you must include both spouse’s income in the means test, though your lawyer should be aware that the non filing spouse’s income should be adjusted for money spent on that person’s debt.
The means test is like a giant tax form, it is complex and currently about 10 pages long, which pages get filed in your bankruptcy case. Therefore you should have the help of an experienced bankruptcy lawyer to determine what effect the means test has on your situation.