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Bankruptcy Law Blog

Monday, December 10, 2018

Bankruptcy Means Testing: A Quiz You Can’t Study For

Did you ever have that dream where you show up at school only to realize there is a big test that day and you didn’t study for it? Some psychologists say this is your brain reminding you not to forget something important that is coming up in your waking life. Others say it is your brain’s way of saying you regret something. Freud probably thought it had something to do with being in love with your mother.

Whatever it means, it’s terrible. Forgetting about or feeling unprepared for a test is not a good feeling. In the bankruptcy world, there is a test that will never make you feel this way, in a dream or otherwise, because it is a test that is impossible to study for. The bankruptcy means test determines which Chapter of the bankruptcy code personal filers are allowed to file under.

The last time Congress overhauled our nation’s bankruptcy laws, lawmakers were concerned that too many people were filing for Chapter 7 bankruptcy and getting all of their debts wiped out. Congress suspected that a few people who file under Chapter 7 could actually afford to pay their debts back, they just did not want to. In order to prevent people lawmakers thought should be able to pay back their debts from filing under Chapter 7, Congress adopted a means test that forces some people to file under Chapter 13 instead of Chapter 7.

The means test is a two-part test that measures your incomes, expenses, and family size to determine whether you have enough disposable income to repay your debts, and must, therefore, file under Chapter 13.

The first and sometimes only step in the test checks whether your household income over the past six months is below your state’s median income. If you’re below the median income, you’ve passed the means test and can file for Chapter 7 bankruptcy.

If you are above the median, don’t despair. The second part of the test looks at your monthly expenses and determines how much disposable income you have available to put towards paying down debt. Things like rent, groceries, clothing, and medical bills are “allowable expenses” that are deducted from your income, and what is left over is considered your disposable income. What expenses are allowable varies based on what area of the country you live in, so if you live in Alabama, it is important to follow the applicable guidelines.

Although the means test was designed to restrict the number of debtors who have their debts forgiven under Chapter 7, most people who take the means test pass it easily and are able to choose which chapter of the bankruptcy code to file under.

Deciding what type of bankruptcy is right for you, and whether you qualify for Chapter 7 bankruptcy if that is your preference, is not an easy task. It is wise to seek assistance from an experienced bankruptcy attorney.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”