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Chicago Bankruptcy Question: What is the "means test"?

Chicago Bankruptcy Question of the Day: What is the "means test"?  The means test, as laid out in the required Form 22: Statement of Current Monthly Income, is a standardized method of determining the ability of a person(s) to file for Chapter 7 bankruptcy and can be a determining factor in the duration and repayment amount of a person(s) in a Chapter 13 bankruptcy.  The means test does not apply to businesses, individuals with primarily non-consumer debt or members of the active duty military, along with other specific exceptions.

The means test starts with an analysis of the income of the debtor(s) using the last six months' income from all sources.  Some sources of income are specifically excluded from this calculation, such as Social Security income, but most forms of income must be accounted for.  The six months' income is then averaged into an annual income amount and compared to an average annual income for households of similar size and structure using a Census Bureau table.  If the average annual income is lower than the Census Bureau's standard, then it is presumed that the debtor(s) can file for Chapter 7 bankruptcy.  If the debtor(s) is filing for Chapter 13 bankruptcy, this allows for a repayment plan of anywhere from three to five years.

If the average income is higher than the Census Bureau's standardized number, then it is presumed that the debtor(s) is not permitted to file for Chapter 7 bankruptcy protection.  This is not the end of the issue, however.  An analysis of the expenses of the debtor(s) must then be calculated to determine if there is "disposable monthly income".  Eligible deductible expenses come from multiple sources including, but not limited to, actual monthly expenditures of the debtor(s), IRS standardized tables and Bureau of Labor Statistics tables. 

At the end of this calculation, if there is significant disposable income available to pay unsecured creditors, then the debtor(s) is deemed ineligible to file for Chapter 7 bankruptcy. Additionally, should the debtor(s) elect to file for Chapter 13 bankruptcy, the plan payment would have to account for at least this amount to be paid to unsecured creditors and the repayment plan would have to last for a full five years (unless all debts are paid in full in a shorter term).

The "means test" calculation is very detailed and somewhat complex.  To calculate it properly and to take full advantage of all allowable deductions, you want the assistance of an experienced Chicago bankruptcy lawyer.  The attorneys at Ledford & Wu focus their practice exclusively on bankruptcy and consumer rights law and are intimately familiar with all of the nuances and details of the means test.  Call us today for a free consultation to discuss your options.

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