In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)
was passed. This act made a number of changes to U.S. bankruptcy, one
of the most important of which involves the
bankruptcy means test. Today, anyone who files for bankruptcy must first have their financial
situation evaluated using an income-based test. The test will determine
if a person can file Chapter 7 or Chapter 13 bankruptcy.
The means test was created to limit the use of Chapter 7 bankruptcy to
only those who are truly in need and unable to pay their debts. It works
by focusing on your
monthly income and disposable income.
Monthly Income – The means test will compare your monthly income to your county’s
median monthly income.
If your monthly income is less than your county’s median income,
you’re automatically eligible to file Chapter 7 bankruptcy. If your monthly income is more, the bankruptcy court will further review
your situation and the disposable income you have left after paying monthly
expenses. This is done to see if you have the available funds to make
payments toward your debt.
Disposable Income – If the court decides you don’t have enough disposable income
to pay your debts through a monthly payment plan, you will be eligible
to file Chapter 7 bankruptcy. On the other hand, if you do have enough
funds to pay some of your unsecured debts, you may be required to file
Chapter 13 bankruptcy.
The means test can be rather complex for above-median individuals; however,
it should be noted that such higher income individuals routinely qualify
for Chapter 7. It is critical to hire a competent bankruptcy attorney
who is highly experienced in working with the means test. At Wadhwani
& Shanfeld, our Los Angeles bankruptcy attorneys can help you understand
how the means test works and which Chapter of bankruptcy is best for your
To learn more about bankruptcy, debt relief, and how our firm can help,
today. We serve clients throughout Los Angeles, the San Fernando Valley,
and Southern California.