What Is The Means Test?

The means test is a two-part calculation that determines whether a debtor is eligible to file a Chapter 7 bankruptcy or a Chapter 13. If the debtor is not eligible for a Chapter 7 the means test will calculate the disposable income available to repay creditors in a Chapter 13 bankruptcy. The means test is used to determine the amount of disposable income that the debtor will use to pay creditors. The means test is also used to determine if the debtor has the ability to repay his/her creditors in a Chapter 13 bankruptcy.

The means test consists of finding the debtor’s average monthly income over the last six months and then subtracting the debtor’s monthly expenses from the income. The difference is the disposable income which is then used to calculate if the debtor can repay his/her creditors or not.

Means Test Calculation

The means test consists of determining the debtor’s average monthly income over the last six months and then subtracting the debtor’s monthly expenses. The difference is the disposable income which is then used to calculate if the debtor can repay his/her creditors in a Chapter 13 bankruptcy.

The means test is not a complicated calculation. It is a simple addition and subtraction. The means test is based on the debtor’s average monthly income over the last six months and the average monthly expenses. The amounts used are the actual amounts and not estimates.

Monthly Income

The first step in the means test is to determine the average monthly income of the debtor over the last six months. This is simply a matter of adding the income from each month and dividing by six. For example, if the debtor earned $5,000 in January, $10,000 in February, $7,000 in March, $8,000 in April and $12,000 in May the average monthly income would be (5000+10000+7000+8000+12000) / 6 or $9,500.

Monthly Expenses

The second step in the calculation is to determine the average monthly expenses of the debtor. The means test requires the actual expenses and not estimates. The means test uses the actual expenses that the debtor incurred for the six months. For example, if the debtor had $2,500 in expenses in January, $2,000 in February, $2,300 in March, $2,200 in April and $2,400 in May the average monthly expenses would be (2500+2000+2300+2200+2400) / 6 or $2,400

Determined Monthly Disposable Income

The third step in the means test is to determine the debtor’s monthly disposable income. The disposable income is the difference between the average monthly income and the average monthly expenses. For example, the debtor’s average monthly income is $9,500 and the average monthly expenses are $2,400, the debtor’s monthly disposable income is $7,100.

Determine Eligibility for a Chapter 7 Bankruptcy

The fourth step in the means test is to determine whether the debtor is eligible for a Chapter 7 bankruptcy or a Chapter 13. If the debtor’s disposable income is greater than the state median income the debtor is eligible for a Chapter 7 bankruptcy. If the debtor’s disposable income is less than the state median income the debtor is eligible for a Chapter 13 bankruptcy. State median incomes are published by the U.S. Trustee’s Office and updated every three years.

If the debtor’s disposable income is greater than the state median income, the debtor is eligible for a Chapter 7 bankruptcy. If the debtor’s disposable income is less than the state median income the debtor is eligible for a Chapter 13 bankruptcy. If you are considering bankruptcy or need help resolving your debts, contact your Dallas bankruptcy lawyer today.