With the passage of the 2005 bankruptcy law amendments, Congress created a “means test” to act as a method of determining those persons who can best afford to repay some of their debts through a Chapters bankruptcy. This means that you have to “pass” the means test in order to qualify to file a Chapters bankruptcy. Generally, anyone with a regular source of income can file a Chapters bankruptcy. Congress believed that too many people were filing Chapters bankruptcies when they, in fact, had the “means” to repay some of their debts.
Congress has created a two-part “means test” in order to determine who gets to file which type of bankruptcy. There are now two types of debtors: Above Median Income debtors and Below Median Income debtors.
In Part One, a debtor’s past six months’ income is calculated and averaged, then multiplied by 12 for a projected annual income. This annualized income is then compared to a chart maintained by the U. S Department of Justice/Office of U.S. Trustee that is based on U.S. Census data for the area in which you live. From these tables, a person is determined to be either “above” the local median income or “below” the local median income. These tables can be found by going to the United States Trustee’s website at www.usdoj.gov.
If you are an “above” median income debtor, then the law allows you to deduct certain pre-established expenses along with some discretionary expenses from your monthly income to determine if that brings you below the “threshold.” The “threshold” is determined by whether you have “projected disposable income” after the allowed expenses are deducted from your income. If you have more than $100 of “projected disposable income. If you have less than $100 of “projected disposable income,” then you generally have the choice of filing either a Chapter 7 or a Chapter 13.
This “means test” is artificial and a mechanical calculation. It does not have any real connection to your true current income or your true current expenses. However, this is what Congress has mandated.