A bankruptcy means test is a tool that is used to determine whether or not you are eligible for Chapter 7 bankruptcy. Prior to 2005, the means test was non-existent and it was much easier to be found eligible for bankruptcy. In order to reduce the leniency of the program, the Bankruptcy Protection Act of 2005 was passed and therefore the means test came into play.
There are two parts to the means test. The first part of the test looks at your average income for the last 6 months prior to filing bankruptcy. This average is then compared to the median family income of the state you apply in. If it is found that you meet the median family income or fall short of it, you will be found eligible for Chapter 7. In this type of test, your average monthly income isn’t solely based off of what you make at work (wage, overtime, tips, etc.); it also looks at all aspects in your life that contribute to how much money you receive in a month (child support, alimony, workers’ compensation, rental income, etc.) However, there are a few things that are not included in calculating your monthly income; some of those are: Supplemental Security Income, Social Security retirement benefits, or tax refunds.
You will need to look into the second half of the test if it is found that your average income exceeds that of the median family income of the state you’re filing in. This part of the test will look at necessary expenses (rent/mortgage payment, groceries, etc.) and subtract that from your income. If the remaining amount of income won’t cover your unsecured debt you will be found eligible to file bankruptcy under Chapter 7. If not, you will need to file for bankruptcy under Chapter 13 where a payment plan will be created for you to pay off your debts (priority, secured, and some unsecured debts). There are, however, rare circumstances that will allow you to still file under Chapter 7 even if you fail the means test. These circumstances are attributed by “special circumstances” such as a serious medical condition or becoming unemployed within recent months. Every case will vary, though, and if no special circumstances are found than you will need to file under Chapter 13.