If you have been researching filing for bankruptcy and whether it is right for you, you probably are wondering what the heck is the means test and do I need to pass it? Above you can listen to a candid discussion that I had with Dr. James Gore on 1150AM KKNW on this very topic and the details are below.
The answer as to whether you need to pass the means test will depend on your individual situation. Don’t worry, the means test is not the type of test where you have to sit down with a number 2 pencil and choose the correct multiple choice answer. Rather it is a test created by the U.S. Federal Government to determine whether you are eligible to file for chapter 7 bankruptcy or how much you have to pay in chapter 13 bankruptcy. This test only needs to be taken by consumers who’s household gross income is above the median income for your state and if your debt is classified as primarily (more than 50%) consumer debt. Consumer debt consists of medical bills, credit cards, personal loans, student loans, mortgages and car loans for the most part. Essentially consumer debt is any non business related debt that you have personally incurred for personal use. It should be noted that anybody who has primarily business related debt or tort related debt does not have to pass the means test as this debt is not classified as consumer debt. Tort debt usually consists debt incurred from personal injury such as a car accident where the consumer was negligent. Intentional injurious acts that may be considered torts will be exempt from discharge altogether in bankruptcy for the most part.
What If I am Above Median and My Debt Is Not Business or Tort Debt?
This means that your debt is consumer debt and you will need to pass the means test. The means test is a series of questions and calculations that determines if you have any out of the ordinary expenses that the government deems worthy of being deducted from your available disposable income. The means test provides standard deductions for most items such as food, living, and medical for example. If however you suffer from a medical condition that requires that you spend more than $60 a month out of pocket that you may deduct the excess expense on the means test. Other items that can really help you on the means test are your normal payroll deductions, payments for child support, child care, children’s educational expense if under 18, auto operating and ownership expenses (having a car payment helps), health insurance or other taxes not deducted from you wages. There are other categories but those are the categories that can really help in addition to making up arrears on any secured debts such as a home. Things that won’t help you on the means test include the amount of debt you owe (unless it’s a secured or priority debt such as taxes) or claiming that you pay out of the ordinary normal living expenses such as food. Every bankruptcy case that is filed is reviewed by the U.S. trustee’s office and if you are above median the trustee’s office is going to look to make sure that your means test result makes sense and is allowable. If the means test says that you have no disposable income available in which to pay your creditors then you may qualify for Ch. 7 bankruptcy. If you are showing a positive number on the means test then you probably have to file chapter 13 bankruptcy, although the lower the number the better as that is going to be the amount that you will have to pay to your unsecured creditors over 60 months. If your number equals more than the debt you owe times 60 then it looks like you have a good chance of being in a 100% repayment plan which means all of your creditors will be getting paid over 60 months through your chapter 13 plan.
I Passed the Means Test or It Doesn’t Apply, Now What?
If you have determined that you are an above median debtor but have passed the means test or have primarily business or tort related debt that may create a different problem and one more hurdle to clear to filing for chapter 7 bankruptcy. When you file for bankruptcy every debtor must also file schedules I and J as part of their bankruptcy petition. These schedules must report accurately your current monthly income and expenses. In general your left over disposable income should be close to $0 to show that you don’t have any disposable income left over to pay your bills. If you filed for bankruptcy and you have significant disposable income, say $500 or more, left over every month you could draw an objection from the U.S. Trustee who may raise concerns of not filing with good faith and may seek to convert your case to a Ch. 13 or dismiss your case altogether since you can clearly afford to make payments of some sort to your creditors. It should be noted as well that when including your normal household expenses that you should not be including payments on any debts that would be discharged in your chapter 7 bankruptcy filing since they will not exist after you receive a bankruptcy discharge. If you have determined that you don’t have any disposable income either on the means test or on schedules I & J then you may be a good candidate to file for chapter 7 bankruptcy. If you are not a good candidate for chapter 7 bankruptcy you should consult an attorney to discuss your chapter 13 or debt settlement options to resolve your debts. If you must file chapter 13 bankruptcy, you could always convert your case later to a chapter 7 bankruptcy if your income is significantly decreased. This can occur if a debtor files a chapter 13 bankruptcy but then loses a job and then cannot afford their chapter 13 plan payments.
If you have additional questions regarding whether the means test applies to you in Washington State, give Symmes Law Group a call at 206-682-7975 to learn about your options.