Bankruptcy Means Test
The bankruptcy means test is an important part of determining whether an individual may qualify for Chapter 7 bankruptcy. It compares certain aspects of your household income and financial circumstances with standards established under bankruptcy law.
Failing the first part of the means test does not automatically mean bankruptcy is unavailable. Depending on your circumstances, additional calculations may be required, and Chapter 13 bankruptcy may also provide another option for addressing debt.
What Is the Bankruptcy Means Test?
The means test was designed primarily to determine whether an individual filing bankruptcy has sufficient disposable income to repay a portion of unsecured debts.
The calculation generally considers factors such as:
- Household income
- Household size
- Certain allowed living expenses
- Secured debt payments
- Certain taxes and mandatory expenses
- Other deductions permitted under bankruptcy rules
The calculation can be more complicated than simply comparing your income with a single number.
How Does the Means Test Work?
The first step generally involves calculating your average income during the applicable period before filing bankruptcy and comparing it with the relevant median income for a household of your size.
If your income falls below the applicable median, you may satisfy this portion of the means test.
If your income is above the median, additional calculations may be necessary to determine whether you have enough disposable income to create a presumption of abuse under Chapter 7.
Illinois Income Limits and the Means Test
Bankruptcy means test figures are periodically updated. The applicable income level depends on factors such as household size and the figures in effect when the bankruptcy case is filed.
Because these amounts can change, relying on outdated online income limits may lead to an incorrect conclusion about Chapter 7 eligibility.
A bankruptcy attorney in Chicago can help review the figures applicable to your filing and determine how the means test applies to your financial situation.
What Income Is Considered?
The means test may consider income from several sources, depending on the circumstances. Determining what must be included and what may be excluded requires applying the bankruptcy rules to your particular financial situation.
Income calculations may involve wages, business income, rental income, household contributions, and certain other sources of income.
Some types of income may receive different treatment under bankruptcy law.
What if You Do Not Pass the Means Test?
An above-median income does not automatically prevent you from filing Chapter 7.
The second portion of the means test considers certain permitted expenses and deductions to calculate disposable income. Depending on the results and other circumstances, Chapter 7 may still be available.
If Chapter 7 is not appropriate, Chapter 13 bankruptcy may allow eligible individuals to reorganize debts through a court-approved repayment plan.
Does Everyone Have to Take the Means Test?
Not every bankruptcy filer is subject to the means test in exactly the same way. Certain exceptions or different rules may apply depending on the nature of the debts and other circumstances.
Determining whether an exception applies requires reviewing the specific facts of the bankruptcy case.
The Means Test Is Only Part of Chapter 7 Eligibility
Passing the means test does not necessarily guarantee that Chapter 7 is appropriate or that a case will result in a discharge.
Other considerations can include:
- Your assets and available exemptions
- Previous bankruptcy filings
- Types of debt you owe
- Recent financial transactions
- Property transfers
- Secured debts
- Your overall financial circumstances
These factors should be considered before deciding which bankruptcy chapter may be appropriate.
Understand How the Means Test Applies to You
The bankruptcy means test can be difficult to evaluate without reviewing your complete financial situation. Income above the applicable median does not necessarily mean that Chapter 7 is unavailable.
Consider speaking with a Chicago bankruptcy attorney to review your income, expenses, debts, household circumstances, and available bankruptcy options. Understanding the means test can help you determine whether Chapter 7, Chapter 13, or another approach may be appropriate for your situation.
