The means test is a formula created by Congress and included in the 2005 revision to the bankruptcy law. The test is the centerpiece of the bankruptcy overhaul law and is used to calculate whether an individual filing bankruptcy has any income available to pay toward his unsecured debts. The means test is first used to determine, if an individual has enough income available to make payments on his unsecured debts, and if his income exceeds a certain amount the debtor will not be allowed to file a Chapter 7 bankruptcy, in which the court would have granted him a discharge without first requiring him to make monthly payments toward his debt. If the income is above the thresh hold for a Chapter 7 the law will only allow him to file a Chapter 13 bankruptcy in which he makes monthly payments for a five year period.
If an individual must file a Chapter 13 the means test will also be used to determine how much his plan payments will have to include to cover unsecured debts. Needless to say for a bankruptcy lawyer a thorough understanding of the means test is now a necessity.
The means test starts by taking the debtors average monthly income for the six months before filing the petition and subtracting out what the bankruptcy law allows as deductions. For most expenses such as food, clothing, personal care, transportation, utilities etc the debtor receives a standard allowance for the expenses regardless of his or her actual expenses. For certain items however such as taxes, mortgage and car payments, medical expenditures, health insurance, day care, child support and charitable contributions up to 15% of one’s income, the debtor may deduct his actual expense.
The income less the allowable expenses produces what is called current monthly income, and unless he qualifies for a Chapter 7 an individual debtor will have to pay at least 60 times the current monthly income to his unsecured creditors.
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