Means Test
What Is the Means Test?
The means test is a calculation used in bankruptcy to determine whether an individual qualifies for Chapter 7 bankruptcy or must file under Chapter 13. It compares income to state median levels and evaluates ability to repay debts.
Why It Matters
The means test prevents individuals with sufficient income from discharging debts through Chapter 7. It ensures that those who can repay some portion of their debts do so.
How the Means Test Works
The process typically includes:
- calculating average monthly income
- comparing income to state median
- deducting allowable expenses
- determining disposable income
- qualifying for Chapter 7 or being directed to Chapter 13
The test is standardized but varies by location.
Example
An individual with income below the state median passes the means test and qualifies for Chapter 7 bankruptcy.
Means Test vs Income Test
- Means test includes income and expenses.
- Income test focuses only on earnings.
FAQs About the Means Test
Is it required for all bankruptcy filings?
Primarily for Chapter 7.
What happens if you fail the test?
You may need to file Chapter 13.
Can expenses affect the result?
Yes, allowable deductions are included.
Related Terms
