Bankruptcy Means Test

The bankruptcy means test is an established method to determine whether or not a person is eligible to file for bankruptcy. The Means Test is not a “test” in the traditional sense, but simply a way to measure your financial situation. The Means Test was established when the United States Congress amended bankruptcy laws in 2005 as part of the Bankruptcy Protection Act. The Means Test is very simple and we can do this with you in our office.

The Means Test, Part 1

Part 1 of the test compares your prior six months household income with the median family income in Georgia. If your household income is equal to or less than the Georgia median household income you can file for Chapter 7 bankruptcy.

It is important to note that passing the Means Test means only that you can file for Chapter 7 bankruptcy. Once filed your assigned bankruptcy trustee has the authority to review your case, and recommend to the Court that your case should instead proceed as a Chapter 13 bankruptcy. The bankruptcy court will consider the recommendation and make a ruling on which is appropriate for your situation. In most cases a debtor passing the Means Test will not be forced into a Chapter 13 bankruptcy.

What the income calculation normally considers

The Means Test considers numerous normal types of income including: salaries, hourly wages, commissions, bonuses, overtime pay, and tips.

Other income considerations are income derived from investments such as interest, dividends, royalties, and rental property. Income from previous legal settlements are considered which typically includes spousal support, child support, unemployment, pensions, retirement funds, disability and workers’ compensation income. Annuity payments, including lottery winnings, court awarded damages or insurance payments.

Certain income is not considered. This generally includes tax refunds, Social Security disability or retirement benefits, SSI, and most forms of temporary assistance (i.e., welfare, food stamps, etc.).

The Means Test, Part 2

If you do not pass Part 1 you can go through a Part 2 process to find a way to qualify for Chapter 7 bankruptcy. The reason you would not pass the Part 1 process is simply that your household income exceeds the median household income in Georgia. In Part 2 a closer look is made to determine, after deducting any and all allowed expenses, whether or not your household income is sufficient to pay back some of your debt. If the numbers indicate that you can manage to pay back some (or all) of the debt, you must file for Chapter 13 bankruptcy.