Interplay Between Median Income and Means Test

If you are on line searching for information about bankrutpcy, you have probably come across information about the "Means Test" and "Median Income."  You may be wondering what these are.

In bankrutpcy, you cannot file a chapter 7 unless your combined family income is less than the median income for a family of your size in your state.  There are very few exceptions.  The median income is determined using IRS figures and it is adjusted a couple times a year.  The most recent figures can be found here.  (You have to navigate through a couple of links from that page.)

If you are over the median income, then you are looking at a chapter 13.  The question arises: "how much do I have to pay back to my creditors in a chapter 13 bankruptcy?"  The answer to that question depends in part on how much surplus income you have after running your earnings through the means test.  The means test requires you to take the last six months' worth of your income and subtract from it standard deductions formulated by IRS.  Some of the deductions you get to take even if you don't actually have such expenses, like recurring monthly medical bills.  Other deductions you have to prove, like past due taxes.  If you end up with no surplus income after taking all these deduction off your gross earnings, then your monthly chapter 13 payment is going to be a lot lower.  Conversely, if the deductions on the means test arent's enough to eliminate all of your income, then the law requires that you pay your creditors more.

The means test is a bear.  It is a very complicated government formula that has been the subject of a lot of litigation between bankrupty lawyers, creditors, and the US Trustee's office.  A lot of the words that you might think have plain meaning on the means test have been given unusual definitions by the courts.

If you want to take a peek at the bear, you can see the chapter 7 version of the means test here  and the chapter 13 version here.