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The Bankruptcy Means Test Requirement

In 2005, lawmakers introduced the bankruptcy means test as a way to reserve the bankruptcy process for those who genuinely need its debt protection. The means test was a drastic measure added to the bankruptcy filing requirements. Both advocates and filers expressed concerns that the stringency of the test would eliminate Chapter 7 as an option for most people in debt. While the means test presents an additional hurdle, most debtors who need Chapter 7 are able to file.

How does the Means test work?

Based on a series of financial questions, the means test calculates the debtor's monthly disposable income using data from the last six months just prior to filing. The information is then compared to the published median income of the same-sized household within the same geographical area. The following are the November 1, 2014 Means Test Median Income Standards for California:

  • One earner: $49,185   
  • Family of two: $63,745 
  • Family of three: $67,817
  • Family of four: $78,150

The means test presumes that a debtor, whose disposable monthly income measures higher than the published standard median, has adequate income to repay creditors through a Chapter 13 reorganization plan. Therefore, to prevent abuse of the bankruptcy process, high-income debtors can be disqualified from filing for Chapter 7 liquidation.What if my income is too high?

Nevertheless, if your disposable income is higher than the standard, you may rebut the abuse presumption at the next stage of the means test. Part two of the means tests gives debtors a second chance to qualify for Chapter 7 by allowing you to take certain deductions from your monthly income. Many of the expenses mirror the federal income tax deductions from the IRS, such as:

  • Housing
  • Transportation
  • General standard living
  • Other necessary expenses
  • Priority debt payments
  • Secured debt payments

Debtors, whose disposable income remains above the standard after subtracting the allowable expenses, may include special circumstances to pass the means test. Certain situations, such as a job loss, may help you qualify for Chapter 7.

The bankruptcy process can seem complicated. The skilled Orange County bankruptcy attorneys at Fishback Law Corp can handle all phases to help you achieve the maximum bankruptcy protection. 

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