This legal guide discusses the Chapter 7 Means test which became a requirement in Chapter 7 Bankruptcy cases in 2005.
The Chapter 7 Means Test
The "Means Test" is the result of what is commonly referred to as BAPCPA. In 2005, in response to the demands of credit card companies who thought the bankruptcy rules at that time were too lenient on consumer debtors, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act. The result of the act is a law that makes the bankruptcy process more cumbersome and expensive than the prior law. The means test is a lengthy document that must be filled out by debtors who's debts are primarily consumer debts. The means test takes the debtor's income for the 6 calendar months prior to the month of filing and based on the average monthly income divides debtors into two categories: 1) Debtors whose income is below the state median for their household size, and 2) Debtors whose income is above the state median for their household size. For Debtors whose income is below the state median for their household size, they need only complete parts I, II and III of the means test. As for Debtors who are above the state median in income for their household size, they must complete the remaining parts of the form. The form then calculates the Debtor's monthly disposable income by taking the Debtor's gross monthly income from which certain deductions are then taken to come up with an end result that will determine whether the Debtor must instead file a Chapter 13 bankruptcy. The means test is really mean because only certain deductions the Debtor relies on to offset their income will be based on real numbers. Other deductions, such as the amounts paid for utilities, food, clothing and transportation are determines by IRS standards based on the geographical region where the bankruptcy is to be filed.
Not everyone has to complete the Chapter 7 Means Test
The bankruptcy code excludes from the Means Test Requirement Debtor's whose debts are not primarily consumer debts, disabled veterans if their debt was incurred primarily during a time of active duty, or while performing homeland defense duty, and 1. Members of a reserve component of the Armed Forces and members of the National Guard who were called to active duty (as defined in 10 U.S.C.? 101(d)(1)) after September 11, 2001, for a period of at least 90 days, or who have performed homeland defense activity (as defined in 32 U.S.C. ? 901(1)) for a period of at least 90 days, are excluded from all forms of means testing during the time of active duty or homeland defense activity and for 540 days thereafter (the "exclusion period").