Means Test

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
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A knowingly false statement in your bankruptcy petition or any schedule or statement filed therewith is a federal crime.

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