Means Test
What does "Means Test" mean in law?
The means test, established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and codified at 11 U.S.C. section 707(b)(2), determines whether an individual debtor's Chapter 7 filing is presumed to be an abuse of the bankruptcy system. The test compares the debtor's current monthly income against the median income for a household of the same size in the debtor's state; if income exceeds the median, a second calculation deducts allowed expenses to determine whether sufficient disposable income exists to fund a Chapter 13 repayment plan. If the debtor fails the means test, the case may be dismissed or converted to Chapter 13 unless the debtor can demonstrate special circumstances justifying additional expenses. The means test was designed to channel debtors with the ability to repay into Chapter 13 rather than allowing them to discharge debts entirely through Chapter 7.
Definition
The means test, established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and codified at 11 U.S.C. section 707(b)(2), determines whether an individual debtor's Chapter 7 filing is presumed to be an abuse of the bankruptcy system. The test compares the debtor's current monthly income against the median income for a household of the same size in the debtor's state; if income exceeds the median, a second calculation deducts allowed expenses to determine whether sufficient disposable income exists to fund a Chapter 13 repayment plan. If the debtor fails the means test, the case may be dismissed or converted to Chapter 13 unless the debtor can demonstrate special circumstances justifying additional expenses. The means test was designed to channel debtors with the ability to repay into Chapter 13 rather than allowing them to discharge debts entirely through Chapter 7.
Example
A software engineer earning $150,000 annually failed the means test because his income exceeded his state's median, and after deducting allowable expenses, he still had sufficient disposable income to repay creditors through a Chapter 13 plan.