Reasons Why Income Is Only Part of the Bankruptcy Means Test

April 15, 2022 Bankruptcy

Filing for Chapter 7 bankruptcy is not something everyone is able to do. Before you are able to file, you must pass a means test to see if you qualify. There are two parts to the means test, and income is only one factor. Our Florida bankruptcy attorney explains more about the means test and why income is only one factor that is considered.  

Why the Means Test Exists

The test exists to prevent high-wage earners that can afford to pay back some of their debts from having all their debts discharged through Chapter 7. Instead, they may be able to file a Chapter 13, which will entail them paying back at least a portion of their debts. The test is also designed to provide a fair standard that applies to anyone that wishes to file for a Chapter 7 bankruptcy, instead of arbitrary criteria that allow the bankruptcy courts considerable discretion. 

How the Means Test Works

There are two parts to the means test, and for the first part, you need to determine your average monthly income for the six months prior to filing. Then, you take this number and compare it to the median income for a family in your state. If your income is the same or less than the median income for a family in your state, you have passed the means test and can file for Chapter 7. On the other hand, if your income is more than the median income for a family in your state, you have failed part one of the means test. 

Even if you fail part one of the means test, you may still qualify to file a Chapter 7 bankruptcy under part two. This part requires a little more work. You must determine your allowed monthly expenses and subtract that amount from your income. The difference is known as your disposable income. If your disposable income is under a certain amount, you have passed part two of the means test and can file for bankruptcy. If your income is over that predetermined amount, you have failed part two and cannot file a Chapter 7 bankruptcy.  

Why the Means Test Is Not Limited to Just Income

A debtor is allowed to use many of the expenses on the means test; they are required to list national or local standards rather than their actual expenses. This is to prevent debtors from taking advantage of the test with things like wearing designer clothes and eating at top-tier restaurants. However, if you are required to pay for certain obligations, you are allowed to deduct those expenses. That is because these types of expenses are considered absolutely necessary and not discretionary. Examples include:

  • Union Dues
  • Child Support Payments
  • Alimony Payments
  • Childcare
  • Expenses for a Disabled Child

Speak with an Experienced Florida Bankruptcy Attorney

If you are considering filing for bankruptcy in Florida and have questions about the process and your ability to file, contact the skilled bankruptcy lawyers at Martin Law Firm, P.L. We may be reached via our contact page