How to Influence the Chapter 7 Means Test Calculation

It is only natural for you to wonder about the means test. After all, this primary test determines if you qualify for Chapter 7 and the amount of the trustee payment if you must file Chapter 13. The Chapter 7 means test calculation can work for you, or against, depending on the bankruptcy strategies you adopt before filing.

At first glance, the calculation seems harmless. In the simplest terms, you add your household income, deduct household expenses, and find your disposable monthly income. Nothing about this formula is simple. The U.S. Bankruptcy Code shamelessly tortures the legal definitions of these common financial terms and the required formula.

The income calculation is the simplest. It use your actual income earned over the last six full months. Income deductions are perhaps a little confusing, because a few common payroll deductions are omitted applying the means test. In addition, in a few instances, a portion of actual household income should not appear in your total income according to the code.

Household expenses cause the greatest confusion. In many situations, actual expenses are irrelevant. Instead, you must rely on national average standard deductions, without regard for your personal needs or actual receipts. When the calculation requires national standards, the means test also includes isolated exceptions to general exceptions, so you might, in limited circumstances, use a portion of actual expenses.

In many other categories, you may use actual expenses. Natural fluctuations in actual expense items allow debtors a degree of leeway to alter spending habits, and in turn, influence test results. In practice, you should begin early to influence test results because of the six-month calculation period. If you wait too long to become familiar with the test, changing spending habits has less effect.

Once you determine your Chapter 7 means test income and expenses, the difference is your disposable monthly income over the last six months, then annualized, then divided by 12 to produce your average monthly disposable income.

Start early, if you think filing bankruptcy could be necessary anytime during the next 12 months. With knowledge, a solid bankruptcy strategy, and preparation, most people who file could qualify for Chapter 7. The test is not concrete. Preparation is the key. Once you know what to do, planning becomes automatic.

Preparation for at least six months is required to maximize your means test calculation results. If you are clearly above or below the legal threshold, preparation time is not critical. However, if you are close to the threshold, and prefer to avoid court supervision for five years, then planning early is critically important.

The means test is but one of hundreds of different bankruptcy strategies you must understand before retaining an attorney. The cost of retaining an attorney to provide a basic education covering all of your options would cost at least several thousand dollars. This cost easily doubles once when begin exploring the most profitable advanced strategies available to you in your unique circumstance.

If you must file, use personal due diligence and discover for yourself your most valuable alternatives. Optimizing results is a simple matter of first discovering your options, deciding if you qualify, then comparing estimated results. With this approach, you may calculate your expected benefits to the penny using a side-by-side comparison.

The means test is a fickle friend. You must watch test results carefully over time to appreciate how easily results change.

Dave Clark is an attorney who writes frequently regarding U.S. bankruptcy strategies . When asked how the Chapter 7 means test works, he gladly responded. His article series explains exactly what you too can do to influence the calculation to qualify for Chapter 7 and minimize plan payments.