The Expenses Step of the Chapter 7 “Means Test”
Posted by Kevin on February 18, 2018 under Bankruptcy Blog | 
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If your income is lower than the median income for your household size within your State, there is a “no presumption of abuse” and you can, almost always, file under Chapter 7. If, however, your income is higher than “median income,” you may still file a Chapter 7 case by going through the expenses step of the Means Test.
The concept behind the Means Test is pretty straightforward: people who have the means to pay a meaningful amount to their creditors over a reasonable period of time should be required to do so. That means they must file under Chapter 13 where payments are made to creditors over a 3-5 year period.
But putting that concept into law resulted in an amazingly complicated set of rules.
One of the complications is that the allowed expenses include some based on your stated actual expense amounts, while others are based on standard amounts. The standard amounts are based on Internal Revenue Service tables of expenses, but some of those standards are national and some vary by state. There are even some expenses which are partly standard and partly actual (certain components of transportation expenses).
Disposable Income
If after subtracting all the allowed expenses from your “income” you have some money left over, whether you can be in Chapter 7 depends on the amount of that money and how that compares to the amount of your debts:
- If the amount left over—the “monthly disposable income”—is no more than $128.33, then you still pass the means test and qualify for Chapter 7.
- If your “monthly disposable income” is between $128.33 and $214.17, then apply the following formula: multiply that amount by 60, and compare that to the total amount of your regular (not “priority”) unsecured debts. If the multiplied total is less than 25% of those debts, then you still pass the means test and qualify for Chapter 7.
- If after applying the above formula you can pay 25% or more of those debts, OR if your “monthly disposable income” is more than $214.17, then you do NOT pass the means test, UNLESS you can show “special circumstances”.
THAT’s Complicated!
If you don’t pass the means test you, will likely end up in a 3-to-5-year Chapter 13 case. Not only will that mean you cannot discharge your debts until the end of the 3-5 year period, but you may well also end up paying thousands, or even tens of thousands, more dollars to your creditors. It’s definitely worth going through the effort to find a competent bankruptcy attorney to help you, whenever possible, find a way to pass the means test.
