What makes the Means Test so mean?

If you are considering whether you should file bankruptcy, you would be well advised to hire an attorney who will help you through the dreaded Means test. The means test is a product of 2005 bankruptcy reform undertaken by Congress (also referred to as BAPCA). This act intended to stop consumers from abusing the bankruptcy process.

As a result, the means test was created to filter debtors out of Chapter 7 liquidations when they really could afford to pay plan payments associated with a Chapter 13 reorganization. That is what is meant by abuse. Your creditors want to ensure that if there is any blood to suck, it’s theirs. If you’re found to be abusing Chapter 7, you’re only option is to file a Chapter 13 where each month’s disposable income is given to your creditors for either 3 or 5 years.

It works like this.
The means test compares your monthly gross income with other same-sized families in your state. The numbers are adjusted regularly by data collected by the Department of Justice and the Census Department, and are said to accurately reflect how much it costs for various necessary expenses.

What makes it so mean?
Well, for starters, it starts off so simple, but can get ridiculously complex. This is a bad situation to be in if you’re going-it alone. By the time your on page 4, you’re cross-referencing and multiplying and basically flying blindly to an unknown end.

Another reason the means test is tough is that household size determines how much it’s supposed to cost to live. What is household size? Well, the safest answer to that question is that household size in bankruptcy is the same as it was on your tax return. (Yes, the trustee will look at your tax return when you go to court–some excuses are accepted, but no exceptions are allowed.)

You’ll need to consult with a reputable bankruptcy attorney to determine which tax return to look at.

For example, if you have a baby April 17 (two days after your 2008 tax return is due), and then file for bankruptcy on May 1st, do you use the household size from your newly filed tax return or do you get to add that baby into the mix. It depends on your trustee.

Another example is if you have a roommate, or if you are in a domestic partnership. What is your household size? The answer is the same (it’s the number from your tax return). But what if you collect rent, what if you share household expenses, what if your partner pays all the bills? What if you pay all your partner’s living expenses? What about your child support payments?

These are all reasons why you will need help from an attorney who understands the ramifications of the numbers entered on your means test.

If your income exceeds the allowable amount for same-sized households, you will have to complete the calculations that will make your eyes-cross and brain hurt. But the reward is great–if the calculations show that you stay in a Chapter 7 bankruptcy. Trust me, it’s worth it to stick to it to the end.

There is no reason to suffer alone. Call someone who’s been there and can show you through the maze.