In a previous blog post, “Bankruptcy Basics: What is Chapter 7 Bankruptcy and How Does It Work?” I began to explain the details of filing bankruptcy according to Chapter 7 of the federal Bankruptcy Code. This type of filing, Chapter 7, has compelling advantages to offer debtors, including a resolution to ongoing debt claims if certain criteria are met. “Means testing” is part of the process of establishing eligibility, and I am going to explain what it is.

Do you have the ‘means’ to pay off debt?

Means testing is a method of determining a person’s eligibility to maintain a Chapter 7 case.

A person whose annualized current monthly income from all sources exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she is not able to pay a minimum of $100 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income.

Let me restate that in overly simplistic terms: In order to be eligible to maintain a Chapter 7 case, you must show that you cannot spare $100 a month to pay off debt.

Of course the specifics are very important. As I mentioned, your income level, family circumstances, place of residence are all analyzed and play a part in determining eligibility.

Disposable monthly income is a person’s current monthly income from all sources, minus PERMITTED current monthly expenses.

What happens if you don’t meet the benchmark? The Chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay $100 per month or more to unsecured creditors for 60 months will be dismissed or converted to Chapter 13 (unless special circumstances exist, a state of affairs I will explain in other FAQ posts).

How is means testing conducted?

Every person who files a Chapter 7 case must file a document called the Statement of Current Monthly Income and Means Test Calculation.

This document, when completed and filed, is a record of a person’s current monthly income and the current monthly expenses that he or she is allowed to claim. A person may also be questioned about income and expenses at a meeting with creditors.

From these sources, a debtor’s current monthly disposable income is calculated. This figure is then used to determine the amount of the monthly payment that the person can afford to make to his or her unsecured creditors. If the amount of this monthly payment is above a certain figure (usually $100), the person will almost always be disqualified from maintaining a Chapter 7 case.

What happens if means testing finds that you are ineligible to file for Chapter 7? If you file, but do not meet the criteria, you are said to have “abused” the Chapter 7 laws. In my next blog post, I will explain the term presumption of abuse and what it means for those who file for Chapter 7 but do not meet the conditions.

Thanks for reading and let me know if you have any questions,
Matt
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Matt Hughson

New York Bankruptcy Lawyer

Ziff Law Firm, LLP
303 William St., Elmira, NY 14901
Tel: (607) 733-8866
Fax: (607) 732-6062
Toll Free: 1-800-943-3529
Email: mhughson@zifflaw.com
Web: http://www.zifflaw.com

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