History

• Congress amended the U.S. Bankruptcy Code in 2005, adding the means test used today in Chapter 7 bankruptcy cases involving consumers. Prior to the amendment to the code, no specific means test existed screening consumers interested in seeking Chapter 7 bankruptcy relief.
  
  

Function

• The means test prevents consumers who make over a specific income level from filing a Chapter 7 bankruptcy case. The theory is that if a consumer actually has expendable income available to satisfy his debts through another bankruptcy option, obtaining a discharge of debts is not appropriate. A consumer who fails the means test can file a Chapter 13 bankruptcy. Through a Chapter 13 proceeding a consumer pays of his debts over time under court supervision.
  
  

Considerations

• The first element of the means test is averaging your monthly net income over the six-month period immediately proceeding the filing of a bankruptcy case. If your average monthly income falls at or below the median income in your state, you automatically qualify for a Chapter 7 bankruptcy. The U.S. Census Bureau defines median income as "... the amount which divides the income distribution into two equal groups, half having income above that amount, and half having income below that amount."
  
  

Disposable Income

• Even if your net income is above the median income for your state, you may yet qualify for a Chapter 7 bankruptcy. The court permits you to deduct certain necessary expenses from your net income each month. These expenses include your rent or mortgage, child care, food and other basic expenses associated with day-to day-living. If you end up without any significant available money after these expenses (called disposable income), you qualify for a Chapter 7 bankruptcy.
  
  

Expert Assistance

• Qualifying for and proceeding with a Chapter 7 bankruptcy case involves the application of complex laws and court procedures. Consider retaining the services of an attorney if you desire to pursue a bankruptcy. Local and state bar associations maintain directories of attorneys in different practice areas. Contact information for these organizations is available through the American Bar Association:
  
  American Bar Association
  321 N. Clark St.
  Chicago, IL 60654-7598
  312-988-5000
  abanet.org