The means test is a calculation used to determine if a debtor is eligible for Chapter 7 bankruptcy. The means test compares the debtor’s income to their expenses to determine if they have the ability to repay their debts.
To calculate the means test, the debtor must first calculate their current monthly income. This includes all income from all sources, such as wages, salaries, commissions, bonuses, alimony, child support, pensions, Social Security, and unemployment benefits.
Next, the debtor must calculate their allowable monthly expenses. These expenses include food, clothing, housing, transportation, health insurance, and other necessary expenses. The debtor can use the IRS national and local standards to determine their allowable expenses.
Once the debtor has calculated their income and expenses, they can subtract their expenses from their income to determine their net monthly income. If the debtor’s net monthly income is below the median income for their state, they will pass the means test and be eligible for Chapter 7 bankruptcy.
If the debtor’s net monthly income is above the median income for their state, they may still be eligible for Chapter 7 bankruptcy if they can prove that they have extraordinary expenses. Extraordinary expenses are expenses that are not included in the IRS national and local standards, such as medical expenses, childcare expenses, and educational expenses.
The means test is a complex calculation, and it is important to speak to an experienced bankruptcy attorney to determine if you are eligible for Chapter 7 bankruptcy.