In 2005 Congress enacted and included as part of the new bankruptcy vernacular a concept called “The Means Test". Basically what this amounts to is an attempt on behalf of Congress to make certain that those were are receiving the benefit of a bankruptcy discharge, are doing so only after they have made their best effort to pay their creditors all they can given their individual current financial circumstances. More specifically, the means test simply measures whether a debtor, or couple, has the “means"or ability to pay something back to their creditors and still maintain their monthly reasonable living expenses while remaining current on their secured debt.
In the simplest sense, the means test asks us to average the last 6 months worth of our gross income, subtract from that gross income expenses for monthly expense items that are allowed under the Internal Revenue Services guidelines when they are trying to collect taxes from individuals; then we can deduct any unique, extraordinary, and necessary sums needed to be expended on a monthly basis; and then finally we deduct or subtract payments on any secured debts, such as home loans, auto loans, furniture or appliance obligations, etc.
If at the end of this calculation there is enough money leftover to pay one fourth of your unsecured debt, or at least $10,000 to unsecured creditors over 60 month period of time, then you have “failed the means test" and are not allowed to file a Chapter 7 liquidation bankruptcy. Rather you are left to consider filing a Chapter 13 Adjustment of Debts, or Chapter 11 Reorganization.
The means test calculation is somewhat mind bending and very difficult to understand. It is imperative that before you consider filing for bankruptcy, that you schedule an appointment to meet with an experienced consumer bankruptcy attorney who can run the calculations and determine your eligibility for Chapter 7 bankruptcy, as well as your exposure in a Chapter 13 proceeding.