The means test is a test by which the court determines if you are eligible to file a chapter 7 BK. Since there was a lot of abuse of people filing the chapeter 7, now the court employs the means test to see if you can even qualify for the chapter 7. In laymen's terms, the means test will likely prevent people who live an above average lifestyle from filing a chapter 7 and force them to pay creditors back by adopting a chapter 13 plan which will in turn force them to live a more ordinary life style until the chapter 13 plan is completed.
To apply the means test, the courts will look at the debtor's average income for the 6 months prior to filing and compare it to the median income for that state. For example, the median annual income for a single wage-earner in California is $42,012. If the income is below the median, then Chapter 7 remains open as an option. If the income exceeds the median, the remaining parts of the means test will be applied.
This is where it gets a little bit trickier. The next step in the calculation takes income less living expenses (excluding payments on the debts included in the bankruptcy), and multiplies that figure times 60. This represents the amount of income available over a 5-year period for repayment of the debt obligations.
If the income available for debt repayment over that 5-year period is $10,000 or more, then Chapter 13 will be required. In other words, anyone earning above the state median, and with at least $166.67 per month of available income, will automatically be denied Chapter 7.
So for example, if the court determines that you have $200 per month income above living expenses, $200 times 60 is $12,000. Since $12,000 is above $10,000, you're stuck with Chapter 13.
Please click ACCEPT so I can get credit for my work. We can continue our conversation after this at no additional charge.