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How To File Bankruptcy: The Means Test

This is part of our series on How To File Bankruptcy.

how to file bankruptcyIf you file bankruptcy, you’ve got to complete the means test form. Period.

One of the odder requirements of the bankruptcy law rests in the means test.

The thinking behind it is that people who have had an income higher than more than half of the other people in their state for the six months prior to filing bankruptcy are better able to repay their debts.

Live in California and have three other people living under your roof? If you’ve got primarily consumer debts and made more than half of the other people in California with three other people living with them, you’ve got to worry about the means test.

Means Test Necessary For Primarily Consumer Debts Only

You’ve got to worry about the means test only if your debts are primarily consumer debts in nature. That means if your total debt load is $30,000 then you’re exempted from means testing if you have $15,000.01 in non-consumer debt.

Some debts are easy to categorize as being non-consumer. Business loans, for example, are clearly non-consumer in nature. Tax debts also qualify as being non-consumer debts.

Other debts are more difficult to classify. Credit card debts, for example, may be a hodge-podge of consumer and business debts. Some student loans may qualify as well.

That’s why you want to look through all of your bills and sift through the statements if necessary.

Backward-Looking Income Information

The income information we collect for the means test looks only at the six months immediately prior to filing for bankruptcy.

Take the total income over the past six months, divide it by six to get an average and then multiple it by twelve to get your current monthly income.

If you falls above median income for a household of your size in the state in which you live, you need to complete the entire form. Fall below and you can stop.

Only Half the Story

On first blush, the means test asks for a simple piece of information – your income.

Once you dig deeper, the innocuous-looking form contains hidden land mines.

What’s your income?

What’s the appropriate median income?

What if you had a really great six months, but now you’re not doing as well?

As with the Petition, every answer begs more questions when it comes to bankruptcy.

By |May 24th, 2013|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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