Means Test
What is it?
The Means Test is the courts way of determining whether you qualify for Chapter 7 or Chapter 13. This new law requires the court to look back at the debtors income and expenses over the last six months to determine if the debtor has “disposable income” or money left over. The court requires copies of all pay stubs over the last six months including all other income. This figure is averaged and then monthly expenses for rent, food, utilities, transportation, clothing, recreation etc. are subtracted. These expenses are not your expenses but are predetermined by the court based on IRS standards, your county and your family size. It is therefore, a formula with no relation to your actual expenses.
If you have $0 left over or are in the negative you pass the means test and qualify for Chapter 7. If you have funds left over (over $180.00) each month you do not qualify for a Chapter 7. You may however, file a chapter 13 paying disposable income (funds left over) each month to the Court to be distributed to unsecured creditors. Chapter 13 will last 36 or 60 months and, upon completion, the unpaid balance of debt is discharged similar to a Chapter 7. It is not unusual to pay back 1% to creditors in a Chapter 13 and discharge the balance.