Taking the “Means Test” All the Way to Its End

If your income is higher than the median and you have too much disposable income, you’ll need “special circumstances” to do a Chapter 7.

The “Presumption of Abuse”

The means test determines whether you qualify to file a Chapter 7 “straight bankruptcy” case—or whether instead you have too much “means” to do so. If you don’t pass the means test, your case is said to be presumed to be an abuse of Chapter 7. That’s just another way of saying you are not legally appropriate for this type of bankruptcy relief. Then you can’t proceed with your Chapter 7 bankruptcy case, and your case will either be dismissed (thrown out) or more likely converted into a Chapter 13 “adjustment of debts” type of bankruptcy instead.

There are a number of levels to this test. Once you pass it at any of the levels, you don’t have to go any further. My last few blog posts explored the earlier levels; today is about the final level. You only get here if you haven’t passed the means test on any of the earlier levels.

The Earlier Levels of the Means Test

You can avoid this presumption of abuse IF ANY of the following apply to you:

First, your income is no more than the median family income for your state and your size of family. See this website for the current median income amounts. Caution: “income” has a very specific and unusual definition for means test purposes. See my recent blog posts for more about this.

Second, if your income is more than the applicable median family income amount but, after subtracting a list of allowable expenses, your remaining monthly disposable income is less than about $125 per month, then you pass the means test.

Third, if your income is more than the applicable median family income amount, AND your remaining monthly disposable income after the allowable expenses is more than about $125 per month but no more than about $208 per month, then you may be able to still pass the means test. But that’s only if, when you multiply your monthly disposable income amount by 60, that total is less than 25% of your “non-priority unsecured debts” (debts not secured by collateral, excluding special “priority debts”—certain taxes, support payments, and such).

It’s somewhat rare that a person who needs and wants to file a Chapter 7 case would not have passed the means test through one of the above levels. A large percentage of people pass on the first level by simply having low enough income. Others pass at the second level because their income is low enough compared to their expenses. And others pass because the amount of their disposable income after expenses is low enough compared to the amount of their debt.

The Last Level

BUT, if after all this you haven’t passed the means test that your case is still under a presumption of abuse, you still have one more last chance, one last level of the means test to pass. You can show “special circumstances.” The Bankruptcy Code lays out this out as follows:

[T]he presumption of abuse may… be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances… justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

Congress did not make clear what counts for “special circumstances” beyond the two examples provided.

The Means Test Ends Up Being Not So “Objective”

So when pushed to the last level, a test that was intended to be an objective way to decide who qualifies to file a Chapter 7 bankruptcy comes down to a very subjective question about whether any “special circumstances” apply. Talk to your attorney about how this phrase is being interpreted in your local bankruptcy court.