What to Expect During the Means Test

Table Of Contents

What is the Chapter 7 Means Test?

The Chapter 7 Means Test is a calculation. The Chapter 7 Means Test determines eligibility for Chapter 7 bankruptcy. The Chapter 7 Means Test compares your income to the median income in your area. Your income must fall below the median income. The median income calculation considers your household size. Your household size directly influences the median income threshold. The Means Test makes sure Chapter 7 bankruptcy is for those truly in need.
The Means Test involves a specific formula. The formula subtracts certain allowed expenses from your income. These allowed expenses include housing, transport, and healthcare costs. The Means Test applies national and local standards for these expenses. The Means Test does not always use your actual expenses. Your disposable income is the result of the Means Test calculation. Your disposable income determines your ability to repay debts.

How Does the Means Test Work?

The Means Test works by first calculating your current monthly income. Your current monthly income is your average income over the six calendar months before filing. All sources of income are included in this calculation. Some income sources are excluded, such as Social Security benefits. Your current monthly income is then annualised. The annualised income is compared to the state's median income for a household of your size.
The Means Test then applies specific deductions if your income is above the median. These deductions are for necessary living expenses. The deductions include payments on secured debts, such as a mortgage. The deductions also include child support payments. The Means Test calculates your remaining disposable income. Your remaining disposable income determines whether you pass or fail the Means Test. A low disposable income indicates eligibility for Chapter 7.

Means Test Income Calculation

Means Test income calculation begins with your gross income. Your gross income includes wages, salaries, business income, and rental income. Your gross income also includes unemployment benefits and pension payments. The Means Test calculates the average of your gross income over the six months before filing. This six-month average establishes your current monthly income for the Means Test.
The Means Test income calculation excludes certain items. Social Security benefits are excluded from the Means Test income calculation. Certain disability payments are also excluded from the Means Test income calculation. These exclusions reduce your total income for Means Test purposes. A lower total income increases your chances of passing the Means Test. Accurate income reporting is important for the Means Test.

What Documents Do I Need for the Means Test?

You need several documents for the Means Test. You need pay stubs from the last six months. Pay stubs show your regular income. You also need tax returns from the previous two years. Tax returns provide a comprehensive view of your income history. These documents verify your stated income.
You need documentation for all household income. Bank statements help confirm income deposits. Business profit and loss statements are required for self-employed individuals. You also need records of any benefits received. A complete set of documents makes sure an accurate Means Test calculation. Your solicitor assists with gathering the necessary documents.

Means Test Deductions

Means Test deductions reduce your disposable income. Means Test deductions include specific living expenses. Housing expenses are a common deduction. Transport costs are another type of deduction. Food and clothing allowances are also included.
The Means Test uses national and local standards for deductions. These standards vary by location and household size. Your actual expenses might differ from the allowed deductions. The Means Test calculates your allowable deductions. A higher amount of allowable deductions helps you pass the Means Test.

When Can I File After the Means Test?

You can file for Chapter 7 bankruptcy after the Means Test determines eligibility. The Means Test result is a prerequisite for filing Chapter 7. Your solicitor reviews the Means Test outcome. Your solicitor confirms your eligibility before proceeding. The filing process starts once eligibility is established.
The Means Test is part of the bankruptcy petition. The Means Test information is submitted with other required forms. The court reviews the Means Test data. The court confirms that you meet the eligibility criteria. A successful Means Test outcome allows your Chapter 7 case to move forward.

FAQS

What happens if I fail the Means Test?

What happens if I fail the Means Test? Failing the Means Test means you do not qualify for Chapter 7 bankruptcy. You consider Chapter 13 bankruptcy. Chapter 13 bankruptcy involves a repayment plan. Your solicitor discusses other options with you.

Is the Means Test always required for Chapter 7?

The Means Test is generally required for Chapter 7 bankruptcy. Some exceptions exist. Disabled veterans might be exempt from the Means Test. Individuals with primarily non-consumer debts are also exempt.

How long does the Means Test take to complete?

The Means Test itself is a calculation. The calculation takes a short time to complete. Gathering all the necessary documents takes longer. Your solicitor helps you compile the required information efficiently.

What income is considered for the Means Test?

The Means Test considers your current monthly income. All sources of income are generally included. Social Security benefits are typically excluded.

Can my income change the Means Test result?

Yes, income changes the Means Test result. A significant income reduction helps a Means Test pass. A substantial income increase makes a Means Test ineligible. The six-month average is important.

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