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MEANS TESTING EXPLAINED

 

Means testing is one of the largest changes that came about when the bankruptcy laws changed in 2005.  Means testing is the government's attempt to create an objective test to determine a family's ability to repay its debts.  Means testing does not apply to you if most of your debts are related to a business.  Whether you "pass" or "fail" the means test is significant. "Pass" and "fail" are in quotes because nobody truly passes or fails.  The means test simply provides data.  If you "pass" and the data is good, your bankruptcy is much easier.  If you "fail" and the data is bad, bankruptcy could be significantly complicated but could still be an option.  There are plenty of websites that allow you to punch in data to do your own means test.  Most of these online tests don't work all that well.  Since the data provided need to be interpreted by a bankruptcy attorney, don't let your online means test get you down or give you false hope.  In most instances, our firm will do a means test for you face to face, for free.  We'll help you interpret that data on the spot so you don't have to wonder about what it means.
 

Means testing and median income

Means testing first examines a family's gross income in the six months prior to filing.  Gross income is all the income received before things like taxes and health insurance come out.  It includes nearly every imaginable source of income such as baby-sitting the neighbors' kids or selling things on eBay.  It does not include money received from Social Security but it does include money received for unemployent or teacher's retirement.
 
Once all the income from the six months prior to a bankruptcy filing is gathered up, it is doubled for the purpose of considering it on an annual basis.  That annual number is then compared to the median income based on family size.  Median income figures usually change a couple of times a year and can be found here. If the annual number is less than the median income based on family size, the person(s) automatically "passes" the means test.  If that number is over the median income based on family size, then the person(s) is subject to means testing.
 

Why it makes sense to see an attorney regarding means testing

There are many many variables when it comes to means testing.  Only a bankruptcy attorney with deep knowledge of the process can analyze the situation correctly.  There could be questions regarding family size such as whether an elderly parent or 24 year old child is considered part of a household.  There could be questions regarding whether something is income such as a withdrawal of an IRA or the sale of a vehicle.  The answers to these questions are never the same because they depend on many other factors that a lawyer would learn from you once you sat down face to face.
 
An experienced bankruptcy lawyer can see ways to minimize the harm of a "bad" means test that a lay person could not or that an inexperienced bankruptcy attorney would never recognize.  If you try to analyze your means test data on your own, you do it at your own risk.  We would be happy to sit down with you and give you our best advice as to what your data means to you.

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