means test
A calculation used in Chapter 7 bankruptcy to determine if a debtor's income is low enough to qualify.
Example
“She failed the means test and was required to file Chapter 13 instead of Chapter 7.”
Memory Tip
MEANS TEST — do your means justify Chapter 7? The math decides.
Why It Matters
The means test directly determines whether you can file for Chapter 7 bankruptcy, which is the fastest way to eliminate most debts. If you do not pass the means test, you may be forced into Chapter 13 bankruptcy instead, which requires a repayment plan over 3 to 5 years. Understanding this test helps you know what bankruptcy options are actually available to you.
Common Misconception
Many people think the means test only looks at their current monthly income, but it actually uses a six-month average of your income and compares it to your state's median income. Even if you recently lost your job, the test may still count your previous higher income, potentially disqualifying you from Chapter 7.
In Practice
Suppose you live in a state where the median income for a family of three is 65,000 dollars per year. If your average monthly income over the last six months is 5,200 dollars (62,400 dollars annually), you would pass the means test and likely qualify for Chapter 7. However, if your average is 5,500 dollars monthly, you would exceed the median and need to proceed through additional calculations to see if Chapter 13 is required instead.
Etymology
From Old English 'maegn' meaning strength — testing the strength of your financial means.
Common Misspellings
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