The Bankruptcy Means Test
Under the old bankruptcy law, almost any resident of the United States could elect to file either a Chapter 7 or Chapter 13 Bankruptcy. Debtors whose debts were primarily consumer debts were subject to scrutiny by the trustee or the Bankruptcy Judge as to whether they had enough disposable income that allowed them to file for Chapter 7 Bankruptcy or whether their filing would be a "substantial abuse." If they did have enough disposable income, the case could be dismissed or the debtor could convert to a Chapter 13 Bankruptcy.
The new bankruptcy law now includes a formula test, called the bankruptcy means test, to determine who may and who may not be eligible to file for Chapter 7 Bankruptcy. The bankruptcy means test applies to people whose debts are primarily consumer debts (such as credit cards, car debt, or mortgages). Many people are forced into bankruptcy because of a failed business or a large business related judgment. Debtors with primarily business debts are exempt from the bankruptcy means test and may file Chapter 7 bankruptcy regardless of their income and expenses. The bankruptcy means test evaluates your income in comparison to the official median income for households in the State of Texas as reported by the Bureau of Census in the most recent reporting year. The median income base increases with the size of your household.
Debtors with an income equal to or below the Texas State median income for families of the Debtor’s size are exempt from the bankruptcy means test. For those Debtors with income above the Texas State median income, there is a presumption of abuse on the part of the debtor, which the Debtor has the burden of disproving.
The bankruptcy means test evaluates whether your current monthly income (from all sources) is greater or less than the applicable median income. Current Monthly Income or (CMI) has a special meaning under the new bankruptcy law. CMI is defined as the average monthly gross income received during the six full months preceding or just PRIOR to your filing for bankruptcy. In applying the bankruptcy means test, the Debtor’s average income over the past six months is used, regardless of present actual income. CMI includes gross income from all sources including income of a non-filing spouse, regular gifts or assistance from family members, and gross income from a wholly-owned business. (Business expenses are deducted elsewhere in the bankruptcy means test calculations.) Social security income is excluded from the definition of CMI.
If your CMI exceeds the State Of Texas median income, then the bankruptcy means test applies a more complicated expense formula to determine your eligibility to file for Chapter 7 Bankruptcy. The formula starts with your CMI and then deducts several categories of allowed expenses to calculate your "net monthly income" which is presumed to be available to pay general unsecured creditors. The bankruptcy means test deducts certain expense categories from "current monthly income" to arrive at your "disposable income."
Many Lawyers practicing Bankruptcy in Texas are finding out that the majority of people considering bankruptcy seem to be under the median state income initially and are mostly unaffected by the bankruptcy means test.
Although Debtors who are over the State Of Texas median income may have a more difficult time filing a Chapter 7 Bankruptcy and they may have to file a Chapter 13 Bankruptcy which requires a monthly repayment to creditors via the Chapter 13 Trustee. The bankruptcy means test will not prevent a debtor from filing a bankruptcy; it will only help determine what type of bankruptcy must be filed.
If you are considering Bankruptcy relief you must take the bankruptcy means test. Click here to take the bankruptcy means test and determine whether or not you are eligible for Chapter 7 or Chapter 13 Bankruptcy.
Bankruptcy Means Testing & Business Bankruptcy Cases
The Bankruptcy Means Test Does Not Apply in Business Bankruptcy Cases. Business Bankruptcy cases are the biggest exception to the new bankruptcy means testing requirements. Means testing only applies if the debts are "primarily consumer debts." The "means test" does not apply to cases where a person incurs most of the debt in connection with the operation of a business. Business Bankruptcy cases are completely exempted from the means testing requirements.
It is quite apparent that the New Bankruptcy Law favors business Bankruptcy Cases over Consumer Bankruptcy Cases. A court can not dismiss a business bankruptcy case under the abuse standards that apply to consumer cases.
At The Law Offices of R.J.Atkinson,LLC we are a Debt Relief Agency and represent people in Chapter 7 Bankruptcy and Chapter 13 Bankruptcy in Houston, San Antonio, Austin, and Dallas. We may be able to assist you in filing for Bankruptcy under The Bankruptcy Code. Please contact us at for a free initial consultation regarding your financial situation or if you have questions about the means test in Bankruptcy. There is no cost to evaluate your situation but don’t wait until it’s too late.
