The Means Test is a crucial component in determining eligibility for Chapter 7 bankruptcy and in establishing the repayment plan in Chapter 13 bankruptcy. It helps assess whether an individual or household has enough Disposable income to repay creditors. Here’s a general overview of how the Means Test is calculated:

Income Calculation:

Gather all sources of income, including wages, rental income, dividends, and any other sources.

Annualize income for the six months preceding the bankruptcy filing. For example, if you’re filing in June, use income from January to June.

Compare to Median Income:

Compare your annualized income to the median income for your state and household size.

Median income figures are regularly updated, and the U.S. Trustee Program publishes them. If your income is below the median, you may qualify for Chapter 7 without further Means Test analysis.

Deduct Allowable Expenses:

If your income exceeds the median, you must Deduct Allowable Expenses to determine disposable income.

Some expenses are standardized based on IRS standards, while others may be based on actual expenses.

Disposable Income Calculation:

Subtract Allowable Expenses from your annualized income to arrive at your disposable income.

This amount is what could potentially be used to repay creditors in a Chapter 13 bankruptcy.

Chapter 7 Eligibility:

If your disposable income falls below a certain threshold after deducting allowable expenses, you may be eligible for Chapter 7 bankruptcy.

Chapter 13 Repayment Plan:

If your disposable income is above the threshold, you may be required to file for Chapter 13 bankruptcy.

In Chapter 13, your repayment plan will be based on your disposable income, and creditors may receive a portion of what is deemed affordable for you.

It’s important to note that the Means Test can be complex, and various factors may impact the calculations. Contact your Redding bankruptcy attorney for more information about the means test at (530) 797-4402.

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