What is the Role of the Means Test in Bankruptcy?
A San Jose bankruptcy attorney talks about the Role of the Means Test in Bankruptcy...
The role of the means test is determined by the Chapter under which you are filing, be it Chapter 7, Chapter 11, or Chapter 13. In any event, the means test is a determination of your “Current monthly income.”
In a Chapter 7, the means test is used to determine whether the filing is abusive. Specifically, in 2005, the law changed to require that people demonstrate that their bankruptcy was, essentially, legitimate. To do this, debtors fill out a complex questionnaire (the means test) which determines whether they are making either less than the average income for their state of residency or whether their expenses are such that the debtor is, effectively, in the red every month. If the means test yields an abusive result, the only real option is to file for a Chapter 13, instead (or go through the difficult task of getting the court to overlook the abusiveness).
In a Chapter 13, the role of the means test is to determine how much disposable income the debtor has. This amount then basically becomes the monthly payment that is funded during the repayment period (between three to five years).
In a Chapter 11, the means test is part of a grouping of disclosure documents regarding income and expenses, created for the benefit of the creditors and the court.
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