If you are contemplating bankruptcy, you may have searched the topic on the internet and seen something called the “Means Test”. For in-depth information on the Means Test, you can visit The United States Department of Justice’s website.
What Is the Means Test?
In 2005, Congress added the Means Test to all bankruptcy filings in an attempt to discourage people from filing for Chapter 7 bankruptcy. The income levels vary by state and household size. If your income is higher than the median income for your state and household size, you may be prevented from filing for Chapter 7 bankruptcy.
Some events that may cause issues with passing the means test include bonuses, lump sums of unemployment, lump sums of severance pay, and lump sums of disability payments. The rules about what to include in the Means Test calculation can be very unforgiving, resulting in a debtor having to delay filing for bankruptcy. Because the Means Test looks at all income (except social security benefits) received in the six months prior to the month of filing, it is conceivable that you can lose your job in December, but be unable to pass the means test in January if your income was too high. Even despite being unemployed, the calculation looks at the last six months and assumes you still make that amount. The same would hold true for a one-time lump sum bonus. Therefore, the numbers could be “skewed.”
Even if you “fail” the means test, the court has the discretion to allow the case to continue. You have to show special circumstances. My best advice to you is to talk to an experienced attorney who can look at your income and tell you whether you will have trouble passing the means test. Depending on where you live, the special circumstance argument may be very difficult to make and an attorney in your area would need to be familiar with your local bankruptcy court cases.
To qualify for a Chapter 7 bankruptcy, it may be necessary to wait a month or so in order to let the unusual income or now non-existent income fall out of the calculation. If you make enough money to pay your everyday living expenses and something to your unsecured creditors, a Chapter 13 Debt Consolidation plan may be best option.
Heather Ellis Banks is an Associate Attorney at the Bond & Botes Law Offices in Knoxville, Tennessee. She holds a Bachelor of Science from the University of Tennessee Knoxville, and a Juris Doctorate from the University of Memphis, Cecil.C. Humphreys School of Law. She has been helping consumers to navigate through the bankruptcy process since 2005. Read her full bio here.