Two things you can do to pass the means test
The means test is, essentially, a math problem that is designed to determine whether a person or family is eligible to file chapter 7 or whether it appears that they have enough money to pay back all or some of their debt in a chapter 13 bankruptcy.
There was no means test until the bankruptcy Reform Act of 2005. And, having practiced bankruptcy law for over 30 years, I can tell you that in most cases the means test doesn’t make any difference at all. What mean by this is that for most of my clients, the ability to get relief from your debts is not affected by the means test. However, there are some situations where the means test presents a problem.
First remember that not everyone has to worry about the means test. If your income for your family size is under the median for your state, then you don’t even have to so the means test. How to find the true median income and determine the correct family size is discussed in more detail in my Ultimate Guide to the means test here on this website.
Please be aware that more than 90% of the attorney websites online will give you incorrect, and outdated information about the median income, so if you need to know how to get the right numbers, you should review my ultimate guide on the home page of this site.
Sometimes, because of your individual circumstances, you might fail the means test even though you truly don’t have enough money to pay back any of your unsecured debt. When this happens to you, you need to know there are a few things that you can do to pass the means test and qualify for chapter 7.
When you’re struggling to pay your bills, the last thing you typically think about is buying a new car. You normally will try to make do with what you have, baby your car along and keep it running because you don’t need another bill to pay. However, when it comes to the means test, having a car payment can make the difference between passing and failing.
The means test is similar to a tax return in some ways. You get deductions for certain things, and this lower your tax bill. In bankruptcy, you get credit for certain kinds of payments that you have, and this helps you pass the means test.
If you have a car payment, you get a bigger deduction from the means test and this can often make the difference between passing and failing. If you have a car that doesn’t have any loan on it, so you don’t have a payment, you can sometimes get some credit – but not nearly as much as if you have a loan on the car.
So, what some people will do is to trade their old car in for a newer one. It doesn’t have to be brand-new one, it just needs to be any car that has a loan on it. Sometimes the deduction that you get from this will be enough to help you pass the means test.
I need to throw in a disclaimer and warning at this point. You will see on some websites that this is said to be against the law. And, some attorneys will tell you that you are not permitted to go out and purchase a car, incur a debt, in other words, simply pass the means test.
And while this may be literal translation of the law, I have read several court opinions that say that if there is a legitimate reason for a person to purchase a car, like, for example, the one that they have is wearing out and doesn’t provide reliable transportation to and from work, then buying a car under those circumstances is not a violation of law. Whether or not your particular situation qualifies you to buy a car before filing bankruptcy should be discussed with an experienced, preferably board-certified, bankruptcy specialist.
Another way that people pass the means test is to purchase health insurance.
Many employers have cut back to less than full time so they don’t have to provide health insurance for their employees. If you have no health insurance or poor health insurance, you might want to consider actually purchasing health insurance. Health insurance is another one of those deductions on the means test that could help you pass it in a situation where you really do need the health insurance but don’t have it or really need to pay a bit more for it than you currently are.
So there you have it! Two quick and easy ways that people often find they can use to pass the means test and qualify for chapter 7 even if their income is above the median income for their state.