The means test is designed to determine whether a Chapter 7 filing is presumed to be an abuse of the Bankruptcy Code. If the Chapter 7 debtor is unable to overcome the presumption, the case will need to be dismissed, or converted to a case under Chapter 13 or Chapter 11.
The means test only applies to debtors that owe primarily consumer debts. Examples of non-consumer debts include debts that were incurred for a business purpose, tax debt, and possibly student loan debt that was incurred for a business purpose such as professional school loans or technical training.
For the means test, income is measured by taking the monthly average of all funds received by the debtor over the six calendar months preceding the month of the bankruptcy filing. If that amount, when multiplied by 12, is less than the median state income for a household of the same size as that of the debtor, there is no presumption of abuse and monthly expenses need not be considered. Social security benefits do not count as income for means testing purposes.
If the debtor’s income is above the median, monthly expenses are considered to arrive at a monthly net disposable income. The means test is not based on actual living expenses, but uses fixed numbers for food, clothing, housing, utilities, medical care and the like, based on the debtor’s geographic location, with a limited opportunity to include higher amounts based on the debtor’s particular circumstances. Also included are payments on any outstanding priority claims which would otherwise be entitled to payment in full in a hypothetical Chapter 13 case.
In most consumer cases, the means test is a hurdle, not a roadblock, to a Chapter 7 filing.