The Means Test
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Q: What is the Means Test?
A: In 2005, Congress revised the Bankruptcy Code to include what is commonly referred to as the “Means Test”. One purpose of the means test is to determine whether someone qualifies to file a Chapter 7 Bankruptcy. Another purpose is to determine the amount that a Chapter 13 Bankruptcy debtor has to pay to unsecured creditors. (Back to Top)
Q: How does the Means Test work?
A: The means test calculation is based on income received from all sources, other than social security income, received in the six-months prior to the month you file your case in. For example, if you were to file your case in January, the six-month look-back, as they call it, would be from the 1st of July through the end of December.
Current monthly income averages for household sizes from 1 to 6 are listed below - (As of 11/01/19) (Back to Top)
Household Size Annual Monthly
1 $66,309 $5,526
2 $78,823 $6,569
3 $90,921 $7,577
4 $105,568 $8,797
5 $114,568 $9,547
6 $123,568 $10,297
Q: Do the Means Test numbers change?
A: Yes. The United States Trustee’s Office revised the means test number in April and November of every year. The numbers may or go or down, depending on the state of the economy. The better the economy, the higher the means test numbers will be. (Back to Top)
Q: How is “Household Size” determined?
There are four prevalent procedures that are used by courts to determine the number of members in your household under the Means Test.
(1) Census approach -- Also referred to as the “heads on beds” approach. Simply count the number of individuals who regularly reside in your home. That is your Means Test family size number. The Census approach is perhaps the most widely accepted and used method of determining household size for the purpose of the Means Test.
(2) Tax Return approach is based on how many dependents were claimed on your Federal Income Tax Return.
(3) Economic unit approach -- this requires an inquiry into what is the economic unit size (which will generally include looking at evidence, which may include the tax return and/or the Census approach. This approach is subjective and may be dependent upon what the court's family experience is.
(4) The blended approach -- this approach takes all three of the above approaches and blends them together, sometimes using a means calculation to come up with a family size such as 3.5 that does not fit the graphs, charts or algorithms of our software. (Back to Top)
Q: Can you still file a Chapter 7 Bankruptcy if your income exceeds the Means Test limits?
A: Maybe. If you go above the threshold for your household size, you proceed to “Stage II” of the means test, where you factor in allowable expenses such as mortgage payments*, including arrears, vehicle payments*, taxes, child support, mandatory retirement deductions, taxes and health insurance. Depending on the nature and extent of these allowable expenses, you may bring your income average below the filing threshold.
*You may deduct these expenses on the Means Test for either Chapter 7 or Chapter 13 cases if you intend to retain the collateral that secures these obligations. However, if you are filing a Chapter 13 bankruptcy and intend to surrender secured collateral such as your home or vehicle(s) as part of your case, you cannot take the deduction on the Means Test. (Back to Top)
Q: What about “luxury” items, like motorcycles, boats, RVs etc..?
A: So called “luxury items” are an allowable expense and deduction on the Means Test. (Back to Top)
Q: Are there any exceptions to the Means Test?
A: Yes. (1) If your debts are “primarily commercial” (business) debts, the Means Test does not apply. (2) The Means Test also does not apply if you are a disabled veteran and your debts were incurred primarily during a period which you were either on active duty or performing a homeland defense activity. (Back to Top)
Q: Taxes – Are taxes “primarily commercial” debts for the purpose of the Means Test..?
A: Yes, so if more than 50% of your debt is comprised of taxes, no Means Test required. (Back to Top)
Q: If I qualify for an exemption do I automatically qualify for Chapter 7?
A: Not necessarily. Even if the Means Test does not apply to you, you still need to pass the “disposable income” test to be able to file a Chapter 7 Bankruptcy. “Disposable income” is the amount of money you have left over each month after you pay your necessary living expenses, such as your rent/mortgage, vehicle payments, child support, utilities, food insurance, insurance, transportation costs, etc.
If your disposable income would allow you to pay back at least 25% of your unsecured creditors, there is a rebuttable presumption that filing a Chapter 7 Bankruptcy would be an “abuse” under the bankruptcy code, and therefore you only other option would be to file a Chapter 13 Bankruptcy. (Back to Top)
Q: Does payment of debtor’s living expenses by a third party counts on the Means Test..?
A: Yes, under 11 USC 101(10A)(B) receipt of funds used to pay living expenses is imputed as income on the Means Test. However, note that in Western Washington if the imputed income is non-recurring income is can be used to rebut the presumption of abuse. (Back to Top)
Q: What is the “Marital Deduction” and how does it affect the Means Test..?
A: A debtor’s non-filing spouse (NFS) is not in the bankruptcy and therefore does not have a legal obligation to pay the filing spouse's debts. The marital deduction is used in Chapter 7 cases where the NFS lives with debtor, or in Chapter 13 cases where the parties are separated and NFS spouse does not contribute income to the filing debtor’s household expenses.
11 USC 101(10B) says you only include the non-filing spouse’s income to the extent it is regularly contributed to the household expenses of the debtor or a dependent of the debtor.
Use the marital deduction on the means-test to back out all of the NFS’s income that isn't going to the debtor’s household expenses. It includes items like NFS's payroll deductions, car payments, car insurance, clothing, retirement contributions, recreation, clubs, etc… (Back to Top)
Q: If I am in the military, what state do I use as my residence for the Means Test..?
A: The military uses Home of Record (HOR) to determine residency, which is the state you claimed as your residency when you joined the service. That never changes unless you change your home of record. Your HOR is where the military sends any state taxes deducted, it is where you get your absentee ballot from, and it is usually where you keep your driver’s license. (Back to Top)
Q: Can I deduct mortgage, vehicle or other secured payments for which I am contractually liable for on the Means Test even though I am surrendering the home, car, etc..?
A: Yes, in a Chapter 7; No in a Chapter 13. (Back to Top)
Q: Can I deduct 401k loan re-payments on the Means Test…?
A: Yes, the deduction allowed on Line 41 of the Means Test is for qualified retirement deductions that includes loan repayment under 11 U.S.C. 362(b)(19)(A). (Back to Top)
Q: If I convert my case from a Chapter 13 to a Chapter 7, or from a Chapter 7 to a Chapter 13, do I need to file new means test form…?
A: Yes. The Local Bankruptcy Rules for Western Washington (LBR 1007-1(b)) require that if you convert a case from Chapter 13 to Chapter 7, or from Chapter 7 to Chapter 13, you have to file a new means test. (Back to Top)