If you’ve done some light reading on the subject of bankruptcy, you may have come across the “Means Test” and all the confusion it brings.  The idea that you might be struggling under a six figure load of debt, but make too much to file for chapter 7 bankruptcy appears to be an oxymoron like jumbo shrimp, pretty ugly, and kosher ham.  The means test does not preclude bankruptcy filing, but requires debtors (with primarily consumer debt) with good incomes to file under chapter 13 rather than 7.

Here are the three steps in the overarching aerial view of the means test.  To get a hard and fast answer, you need to lace up your hiking boots and walk the terrain of specifics, but this will give you a good idea of where you stand.  The first step compares your income to the median income in your state for the same sized family over the last six months.  You can find the current tables here.  If your income is lower than the median, you are free to file chapter 7.  If your income is higher, you move on to the next step, the means test.

In the means test, you determine if you have extra money left over at the end of each month to pay creditors.  Here’s where your research and further math skills come into play, because it’s the IRS standards that determine the budget categories and amounts.  You can find those numbers here.  If you have less than $100 left at the end of the month, you are free to file chapter 7.  If you have more than $166.67, you’ll be a chapter 13.  If you fall between the two, you carry on to the third and final step.  For the third step, you compare the monthly amount paid over 5 years to the total amount of your unsecured debt.  If it’s less than 25%, you can file chapter 7.  If it’s more than 25%, you are a chapter 13.

As you can see, the means test with its multiple questions and heavy reliance on math can be overwhelming for anyone without a PhD in differential equations or a seat in Congress.  If your head is spinning and your calculator is smoking, you can come see us at the Doan Law Firm and we’ll do the calculations for you.  As a bonus, we’ll answer all your other Orange County and los Angeles bankruptcy questions and prove the oxymoron – honest lawyers.