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The "Means Test" was created a few years ago to prevent abuse of the bankruptcy process. It has implications for both Chapter 7 and Chapter 13 cases.
Essentially, the means test forces those who have too much "disposable income" to file for Chapter 13 instead of Chapter 7, and it determines the duration of the Chapter 13 repayment period (either 3 or 5 years).
Below is a general summary of the means test and its implications on Chapter 7 & 13 implications. For more specific information and to actually take the means test, click the "Means Test" link on our Search + Links page.
CHAPTER 7
If you earn less than the California median income (see the median income link on our Search & Links page) then you DO NOT have to take the means test.
If you make more than the median income, then you need to take the means test.
- STEP 1 - Calculate your average monthly earnings for the last 6 months.
- STEP 2 - Calculate monthly expenses (using IRS expense standards)
- STEP 3 - Subtract expenses from income - this is your DISPOSABLE INCOME.
If your DISPOSABLE INCOME is less than $110, you PASS, if not:
| Disposable Income $182.50 or Less |
Disposable Income Over $182.50 |
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If your disposable income is not enough to pay 25% of your unsecured debt over the next 5 years, you PASS.
If not, you must file under Chapter 13
(unless there are special circumstances) |
You must file under Chapter 13 unless there are special circumstances (like a serious medical condition or call to military duty). |
CHAPTER 13
Chapter 13 eligibility requires an analysis of many of the same figures discussed above, but gets a little more complicated. Remember, this summary is a ball-park estimate and a precise computation is much more involved.
- STEP 1 - Calculate your monthly income
- STEP 2 - Calculate your monthly expenses
If your income is below the median, then use your actual expenses
If your income is above the median, use the IRS expense standards
- STEP 3 - Determine what debts must be paid in full (generally taxes, child support, criminal penalties, student loans, etc.) and compile a plan that will pay those debts and pay the remainder of your disposable income to your other creditors (who may get little or nothing).
For more detailed information about the means test, click the "Means Test" link on our Search + Links page.
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THE MEANS TEST & BANKRUPTCY ELIGIBILITY
