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The "Means Test" in Bankruptcy

Posted by attorney Robert Dean

In 2005, Congress passed a law referred to as “BAPCPA" (The Bankruptcy Abuse Prevention and Consumer Protection Act) which introduced a means test to bankruptcy law. The means test is extremely important in Chapter 7 and Chapter 13 cases. It determines who qualifies for Chapter 7 and it is one of the factors determining the amount of a Chapter 13 debtor’s monthly payment to the trustee. It is also called Form 22A in Chapter 7 cases and Form 22C in Chapter 13 cases.

In Chapter 7 and Chapter 13 cases, the test takes an average monthly income based on the debtor’s income for the last six complete months before the debtor’s bankruptcy petition was filed.

In Chapter 7, that average income is used to determine whether the debtor qualifies for relief under Chapter 7 of the code. If the debtor’s average income is lower than the median for a household of that size, then the debtor does qualify. If it is higher, then the debtor can deduct for all of his expenses, including car payments, tax withholding, mortgage payments, and insurance. Some expenses such as food and car maintenance are standardized, based on IRS data. If there is little or no disposable income remaining after the expenses, then the debtor qualifies for relief under Chapter 7. If there is substantial disposable income remaining, then there is a rebuttable presumption that the debtor would be abusing Chapter 7, and that he does not qualify for relief under it.

In Chapter 13, the means test and Schedules I and J determine the debtor’s disposable monthly income for the purposes of the Chapter 13 plan. The disposable monthly income is one of the factors that determine the amount of the monthly payment the Chapter 13 debtor must make to the trustee.

There are differences between the two means tests. For instance, a debtor can deduct for a vehicle ownership expense on the long form means test in Chapter 7 even if he owns the car outright with no lien, whereas a Chapter 13 debtor cannot deduct for such an expense if he owns his car outright (Ransom v. FIA Card Services (U.S. Supreme Court, 2011, 09-907).

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