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The Means Test Explained - Part 2: The Necessary Calculations

The means test may be worse than any test anyone has ever taken. Prospective bankruptcy filers must "take" the means test prior to filing a bankruptcy case to determine their eligibility for a Chapter 7 liquidation case.

The means test includes two stages. The first stage involves a simple comparison of the debtor's income to the income figures for the debtor's state of residence. Thus, the income of the debtor's household is compared to the median income for households of similar size in Florida. If the debtor's income is lower than this median income threshold, the debtor may file a Chapter 7 case. However, the second stage of the means test requires an extended mathematical analysis and calculation of the debtor's disposable income.

In completing the second stage of the means test, a debtor must enter income and expense information onto the appropriate means test form and then make the applicable calculations. While some of the necessary information to complete the means test, such as a debtor's current monthly income, comes from the debtor's own personal financial records, other necessary information is derived from the Census Bureau and the Internal Revenue Service.

The means test allows prospective bankruptcy debtors to deduct certain standard expenses such as:

  • housing
  • food
  • clothing
  • medical care
  • transportation

Housing, food, clothing, medical care, transportation are based on IRS averages for the debtor's locality. In addition to these standard expenses, some actual expenses may also be deducted such as:

  • monthly payments for mortgage and auto loans
  • taxes
  • charitable donations

There are three possible outcomes of the means test:

  1. Disposable income less than a certain amount - If disposable income is less than $7,700 over 60 months, the debtor is eligible to file a Chapter 7 bankruptcy case.
  2. Disposable income more than a certain amount - If disposable income is over $12,850 over 60 months, the debtor must file a Chapter 13 bankruptcy case.
  3. Disposable income between set amounts - If disposable income is between $7,700 and $12,850, and the debtor would have the ability to repay at least 25% of general, non-priority unsecured debts over 60 months, the debtor must file a Chapter 13 bankruptcy case and is ineligible to file a Chapter 7 bankruptcy case.

Thus, if disposable income under the means test is between $7,700 and $12,850, further calculations must be made to determine if the option of filing a Chapter 7 case is available. Prospective debtors in this situation must enlist the assistance of a qualified bankruptcy attorney to ensure that their means test yields an accurate and correct result.

The experienced South Florida defense attorneys at Loan Lawyers are here to help you if your financial position necessitates the consideration of a bankruptcy case filing under Chapter 7, 11, or 13. To schedule a free consultation at any of our three conveniently located offices, contact Loan Lawyers today by calling (888) FIGHT-13 (344-4813).