Means Test

The Means Test reserves Chapter 7 bankruptcy for those without means and forces those with available income to use Chapter 13 bankruptcy plans.

Factors Compared in the Means Test

• Current Monthly Income (CMI) – The current monthly income is the income made six months prior to the month in which you file bankruptcy, which includes all sources of income except for Social Security benefits and a few other exceptions.
• Median Family Income (MFI) – The median family income is the number that represents the fact that an equal number of families make income higher than yours and an equal number of families make income lower than yours.

If your Current Monthly Income (CMI) is less than the median family income (MFI) for households the same size as yours residing in your same state, then you qualify to file for a Chapter 7 bankruptcy. Our bankruptcy attorneys at Bailey & Galyen can let you know whether you are above or below the median income.

• Disposable Income – Certain expenses are allowed according to IRS guidelines. To find your disposable income, these allowed expenses are subtracted from your income.

If your projected disposable income over the next five years is less than $6,000 or $100 a month, you qualify to file for Chapter 7 Bankruptcy.

If your projected income is greater than $10,000 then the government presumes you have enough income available to file for Chapter 13.

• Unsecured Debt – Unsecured debt is debt not secured by collateral or an asset.

If your projected disposable income falls into the range between $6,000 and $10,000, then the amount of unsecured debt you owe is calculated into the formula.

If your disposable income over the next five years is greater than 25% of your unsecured, non-priority debts, then the determination is that you have enough income to make payments to creditors. Just like persons with disposal incomes over $10,000, you will have to file Chapter 13 and will not qualify for Chapter 7. However, if your disposable income over a projected five year period is less than 25% of your unsecured, non-priority debts, then you qualify for Chapter 7.

This explanation is rather simplistic, and there are other factors involved as well as possible exceptions that may come into play. Because calculations can be complex, it is wise to have an experienced bankruptcy attorney do the calculations for you. Under certain circumstances the timing of when you plan to file your petition could also help you qualify for a Chapter 7 bankruptcy.

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