The Means Test
What Is Means Testing?
Under the U.S. Bankruptcy code, if your Current Monthly Income (which equals
the average of income from all sources, including from people who contribute
to your household expenses) is greater than the median income for a household
of your size in Texas (in other words, if your household income is greater
than the income of more than half of the households of your size) then
you are subjected to an analysis of your allowable household expenses
to determine if you have the ability to repay a portion of your debts
over time.
If the answer is
NO then you will qualify for Chapter 7, which allows you to wipe out many
debts from credit cards, personal loans, store credit cards, medical and
dental bills, certain taxes, and some other types of obligations. If the
answer is
YES then you will qualify for Chapter 13, which involves the repayment of a
portion of your debts over a five year period.
How much is the median income for a household of my size?
The median annual income for households in Texas is as follows:
- 1 PERSON: $34,808.00
- 2 PEOPLE: $48,029.00
- 3 PEOPLE: $50,408.00
- 4 PEOPLE: $58,153.00
- 5 PEOPLE: $64,453.00
- 6 PEOPLE: $70,753.00
- 7 PEOPLE: $77,053.00
How is my income calculated?
The bankruptcy court looks at your last six months' worth of income from
all sources plus the income received from other household members,
including your spouse so long as you are not living separately, even if
you are not filing for bankruptcy together. Those numbers are added up and divided by six to get an average monthly
income. This is called “Current Monthly Income.”
Money you or your household members receive or have received during the
past six months from Social Security and certain other sources do not
count in the calculations, but must still be disclosed.
What expenses are taken into account for means testing purposes?
Your monthly expenses are the applicable monthly expense amounts specified
under the National Standards and Local Standards, and your actual monthly
expenses for certain other categories specified as “Other Necessary
Expenses” issued by the Internal Revenue Service for the area in
which you reside, for you, your dependents, and your spouse if you are
filing for bankruptcy together. Such “Other Necessary Expenses”
include health insurance, disability insurance, and health savings account
expenses for you, your spouse, and your dependents. Monthly expenses also
include money that you pay for the case and support of an elderly, chronically
ill or disabled household member or member of your immediate family. Various
other expenses are also taken into account for the purposes of means testing.
How do you fail the means test?
Technically, there is no “pass” or “fail” in the
Means Test. Rather, the court looks at the number that results from your
Current Monthly Income less your allowable expenses. If the resulting
number times 60 is less than the lesser of 25% of your nonpriority unsecured
claims, or $6,000, whichever is greater; or $10,000 then you will be eligible
to file for Chapter 7 bankruptcy without the presumption that you are
abusing the process; if, however, the resulting number is greater than
those numbers then it is presumed that you do not qualify for Chapter
7 bankruptcy and you will probably not be able to file Chapter 7.
Why the means test is not the end of the story.
Even if you “pass” your Means Test the court may still object
your Chapter 7 bankruptcy based upon the facts and circumstances of the
case. And even if you “fail” your Means Test there may still
be other facts and circumstances that support your ability for Chapter
7; if you believe Special Circumstances should apply to your case, you
will be required to provide documentation regarding your argument, and
results are not guaranteed.
What happens if my claim of special circumstances is not approved?
If your claim of Special Circumstances is denied by the court, you will
be given the opportunity to either dismiss your case entirely or convert
to a Chapter 13 case. That decision will be made solely by you, but we
will provide you with guidance regarding your options.
My duty to provide truthful and accurate information
.
A knowingly false statement in your bankruptcy petition or any schedule
or statement filed therewith is a federal crime.
