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How Does the Chapter 7 or 13 Means Test Work and How Is It Calculated Correctly?

Following the enactment of the 2005 amendments, the Chapter 7 means test is the single largest hurdle for debtors to overcome. It is complicated.

Mistakes are common. Many issues trip even experienced attorneys who do not practice before bankruptcy courts on a regular basis. We provide the solution. Today, even average work-a-day people can calculate the chapter 7 means test at home, accurately, legally, and profitably.

Testing Requirements Make Filing Chapter 7 Harder -- Intentionally

Chapter 7 Test
The Chapter 7 Test and 13 Test Requirements Increase Filing Difficulty

We offer extensive forms and instructions to calculate the means test for bankruptcy that are unquestionably easier to use and far more profitable for debtors. The official forms tend to rely on cryptic phrases and provide little meaningful instruction for optimizing results. Our Chapter 7 bankruptcy means test form helps debtors claim maximum deductions and benefits in Chapter 7 and reduces Chapter 13 payments. All of our forms also include clear detailed instructions, examples, tips and suggestions.

The Basic Means Test Calculation

The Chapter 7 means test formula contains two parts. Debtors must first calculate monthly income for each debtor who files. Then, you must calculate expenses using both actual expenses standard allowances for each debtor. Subtract expenses from total income to determine you disposable monthly income.

As simple as this seems, the test unnecessarily complicates a wide assortment of variations and exceptions compared to standard accounting practices. The concept of disposable monthly income in bankruptcy court is far different from the common understanding in business situations.

Creditors use the means test aggressively to file objections and seek dismissal. After all, the new laws and amendments promote creditor objections and provide new avenues to claim abuse. In practice however, with a correct calculation, few creditors prevail in contested hearings. You must use the correct calculation to push test results to the maximum legal limit, but only to the extent allowed by law.

Results Change Over Time

Means Affect
Your Personal Financial Means Affect Your Options

In years past, the IRS adopted national standard allowances to use in cases of tax evasion. Originally, the IRS used these allowances to calculate workout agreements for unpaid taxes. Specifically, the national standards determined required monthly payments to avoid levies, seizures and prison. New bankruptcy laws now incorporate the same national standards, used by the IRS, in the means test calculation. Do not worry; the standards are more reasonable than you may now think if used correctly. Used wrongly, and most people agree the allowance provides for only meager survival.

More importantly, the means test permits options. Debtors may deduct actual expenses in many narrowly defined situations. To prove actual expenses, you must provide proof of payment if requested. These requests are common.

In many cases, a few small changes in spending habits, over a few months, changes results significantly. These changes could save you from five years under court supervision restricted to a mandatory household budget. The opposite is also true. If you reduce you monthly spending habits in the wrong areas, you may lose your qualification for Chapter 7 and increase potential Chapter 13 payments unnecessarily.

Knowledge is the key to success. Unfortunately, many people wait too long to discuss their financial problems with an attorney. If you must file quickly, income and expenses are set. You have little ability to change test results.

Prepare Early

Familiarize yourself with the means test result requirements. Given enough time, most people help themselves qualify with little effort. Take the test as many times as you wish. Play with numbers. Then make changes in your spending carefully, thoughtfully, and profitably.