Although the phrase “means test” suggests a single calculation, in fact, means testing involves several calculations – it would be more accurate to describe these calculations in the plural, i.e. means tests. Like a double elimination softball tournament, if you lose round one of the means test, you can still qualify for Chapter 7 in round two.
Part one of means testing is the “median income” calculation. Here, you write down your gross income, month by month for the six months preceding the current month. I am writing this blog post in June, 2011, so I would be concerned about my client’s gross income for December, 2010 through May, 2011.
Next, you add up your gross income figures for the six month look-back and divide by 6 to get an average, which is called your current monthly income (CMI). If this average is below the median income number for your household size in your state, you have passed the means test.
If the CMI is above the median income number for your household size in your state, then you move to round two to see if you can qualify for Chapter 7 under a more detailed budget evaluation, the purpose of which is to determine whether you have any “disposable income.”
In my practice I use a median income + 20% rule of thumb. Generally, if my client’s CMI is no more than 120% of the state median, there is a fairly good chance I will be able to show that my client has little or no disposable income, and thus would be eligible to file a Chapter 7.
I have represented clients whose CMI is double the state median number, but who could still qualify for Chapter 7. This is unusual, but it does happen.
There is both an art and a science to means testing calculations. Sometimes, waiting a month or two can make a huge difference because of the change in the months used in the look-back period. There is also a growing body of rules about how you treat the income of a non-filing spouse, self-employment income and other unique situations – this is where the counsel of an experienced consumer bankruptcy lawyer can be essential.
An important point to remember – even if you think that you earn too much to qualify for a Chapter 7, you will not know for certain until your lawyer plugs your income and expense numbers into the means test and analyzes the results.
Jonathan Ginsberg, Esq.
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Last modified: February 13, 2013