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Qualifying for Chapter 7 bankruptcy: means test

Last time, we pointed out that the means test is one of the requirements for qualifying for Chapter 7 bankruptcy. Not every debtor who files for Chapter 7 bankruptcy is required to submit to the means test, but only those who exceed a certain income threshold and who therefore raise the presumption of abuse.

Two forms in the filing process, Forms 122A-1 and 122A-2, determine whether a debtor’s income and expenses create a presumption of abuse. If Form 122A-1 shows that the debtor’s income is above the median, they are required to fill out the second form, which is the means test. 

The means test works by reducing a debtor’s income by certain types of debts and living expenses, to come up with the amount which is available to pay of debtors. The following are some of the factors that are used in means testing:  

  • The number of exemption
  • Food and clothing costs
  • Out of pocket health care expenses, up to a point
  • Housing and utilities costs
  • Transportation and vehicle operation and ownership/lease expenses
  • Taxes
  • Court-ordered payments
  • Life insurance
  • Education
  • Childcare
  • Health insurance, disability insurance, and health savings account expenses
  • Education expenses for dependent children
  • Mortgage and vehicle loan payments

If the amount determined to be available to pay debtors is too high, there is a presumption of abuse, unless unique circumstances dictate otherwise. When there are special circumstances in a debtor’s case, it is important to spell these out clearly so that adjustments are made. Working with an experienced attorney ensures that these forms will be filled out correctly and that a debtor has the best possible guidance in navigating the process.

Source: U.S. Courts, Official Form 122A-2: Chapter 7 Means Test Calculation.

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