What the Means Test Means To You

In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which instituted sweeping changes to the United States Bankruptcy Code. Among the many changes to the code was the imposition of a "Means Test" for all consumer bankruptcy cases. The Means Test determines which individuals may seek relief from their creditors under Chapter 7 and which must utilize Chapter 13. On Monday, the IRS issued updated median income figures for each state, which are used in the Means Test, so this seems like as good a time as any to discuss the Means Test, and what it means to you.

In its simplest form, the Means Test takes the Median Income compares the median income for a family of the same size as yours in your state with your family income. If your family income is below the median income for your state then you are eligible to file for relief under Chapter 7; if your family income is above the median, then you are not eligible for Chapter 7 and will likely have to consider filing for Chapter 13.

In theory, individuals with enough income will be pushed out of Chapter 7, and into Chapter 13 where they will be forced to make payments on a portion of their unsecured debt for a period of between three and five years. The public policy rationale is that if an individual can make certain payments toward their debt, they should at least pay something. In many cases, people making just over the median income (based on double the actual gross income for the past 6 months) are forced into a lengthy and expensive Chapter 13 case, where these families who are already struggling will have to make monthly payments to a Chapter 13 trustee for as much as 60 months, while those making only slightly less can reach a discharge in as few as 4 months, with no payments to a trustee in a Chapter 7 case.

In Massachusetts, where I practice, the median income for a person living alone (as of the date of this entry) is $53,315.00, $69,204.00 for a family of two, $82,297.00 for a family of three, etc.. (You can find more information about the median income in your state here: http://www.justice.gov/ust/eo/bapcpa/20100315/bci_data/median_income_table.htm) While these numbers may seem high to some readers, the median income in Massachusetts has been trending down for the past year, as a result of the down economy.

The median income is not a static number, but the comparison is not. There are "deductions" from your income for certain allowed living expenses (health care, automobile maintenance, payments to secured creditors) which will turn the basic calculation on its ear.

A qualified bankruptcy attorney can, after some number crunching, tell you whether you "pass" the means test and are then eligible for a Chapter 7 case, or if you must consider Chapter 13. More importantly, your bankruptcy attorney can help you determine if a Chapter 13 case might be more beneficial to you regardless of how "score" on the means test. If you have questions about the means test please call the Law Offices of James Wingfield at 508-797-0200, or visit our website at www.wingfieldlaw.com.