Bankruptcy Means Test

What is the means test?

The bankruptcy means test is an income based tests which compares the gross income of a debtor to the median gross income level for a household of similar size in the same state. The debtor qualifies for a chapter 7 bankruptcy if their gross income is below or equal to the applicable median gross income level for their state.

A debtor must pass the means test to file a chapter 7 bankruptcy if their income level is above the applicable median income level for their state. The test calculates a debtor’s disposable income after allowing specific reasonable and necessary expenses. The means test has a six (6) month look back period. Thus, a debtor would add up the gross income amount for the six (6) months prior to filing and divide by six (6). The applicable period ends with the last day of the month prior to filing. Thus, if a debtor filed on February 14, 2013, the applicable means test period would be August 1, 2012 to January 31, 2013.

However, it should be noted that some bankruptcy courts allow certain income’s to be prorated over twelve (12) months. A case from Virginia allowed a debtor to prorate an annual bonus for purposes of the means test, In re Meade, —— B.R. ——, 2009 WL 4456211 (Bankr. W.D. Va., Nov. 13, 2009). The court noted that this was a more realistic common sense approach in keeping with what appeared to be the purpose and goals of the Bankruptcy Code.

What is considered income under the means test?

The means test includes all sources of income with limited exceptions. Source of income that are included as income under the means test include, but are not limited to: wages, salary, tips, commissions, gross income from a business or farm, interest, dividends, royalties, rental and real property income, regular child or spousal support, unemployment compensation, pension and retirement income, worker’s compensation payments, annuity payments, and state disability payments.

A few of the exceptions to income under the means test include: social security retirement benefits, social security disability insurance, supplemental security income, and temporary assistance for the needy. Most income derived under the Social Security Act is not considered income.

Casey Kepple Peoria Bankruptcy Lawyer

The Kepple Law Group is highly knowledgeable in bankruptcy matters, including the discharge of debts, and can advise clients in all aspects of bankruptcy proceedings.

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