The Bankruptcy Means Test

Chapter 7 vs. Chapter 13

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a means, or income, test. This test will be applied to Chapter 7 bankruptcy petitions that are filed on or after October 17, 2005, if the debtor is an individual with primarily consumer debts. The test will determine if the debtor is eligible for Chapter 7 or must file under Chapter 13 for relief. If you have questions regarding the means test contact a bankruptcy lawyer in Houston or Beaumont at any time.

How the Test Works

Your current monthly income (CMI) equals the average monthly gross income that you, or if joint filing, you and your spouse, received from all sources. This includes anything paid by any other entity on a regular basis for the household expenses of you, your spouse and your dependents, over a six-month period immediately preceding the bankruptcy filing. Social Security benefits and payments to victims of war crimes, crimes against humanity, and terrorism may be excluded.

As published by the U.S. Bureau of Statistics, the means test is adjusted for family size. Generally, allowable expenses include living expenses. These living expenses are determined under the IRS National Standards for Allowable Living Expenses based on family size and gross monthly income. An additional 5 percent of the National Standards food and clothing categories is allowed if you can demonstrate that this additional amount is reasonable and necessary.

IRS Standards

​Under the IRS Local Standards Housing and Utilities Allowable Living Expenses for your state and county, you may be granted an additional expense allowance for actual home energy expenses if you can document the expenses and demonstrate that they are reasonable and necessary. The IRS Allowable Living Expenses for Transportation determines the additional expenses, related to vehicles, allowed for the home. The actual amounts of other necessary expenses, including:

  • Charitable contributions not to exceed 15 percent of your gross income
  • Costs of child care, including day care and babysitters
  • Care for elderly, invalid, or handicapped members of your immediate family
  • Elementary or secondary school expenses for each dependent child under 18 years old
  • Health insurance, disability insurance, and health savings account expenses
  • Federal, state, and local tax payments, including FICA and Medicare secured debt payment
  • Administrative expenses if you're eligible to file Chapter 13
  • Reasonably necessary expenses to keep you and your dependents safe from family violence

The means test is a difficult and complicated issue. If you need assistance in this area, a bankruptcy attorney from the Maida Law Firm, P.C. can walk you through the process and can help you do the math. Simply bring the firm your data and they can help you begin the process of bankruptcy. The Maida Law Firm, P.C. serves clients in both Beaumont and Houston*, Texas, so call today!

*Houston office available by appointment only.

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