When the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005, one of the major standards that reorganized the bankruptcy process for those hoping to file for Chapter 7 bankruptcy was introduced. Known as the means test, debtors are not allowed to file for Chapter 7 discharge protection under the current laws if they do not meet a relative limit that compares debt to monthly income. The primary reason for this addition was to prevent bankruptcy from occurring due to perceived consumer debt abuses, namely those in which a person could have afforded to pay back debts, but simply did not.
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The means test becomes an issue mainly only to those who make a significant amount of money compared to other individuals in their state of residency. According to the current iteration of the means test, a person cannot file for Chapter 7 bankruptcy if their income is above the median income of the state. This supposedly removes individuals who should reasonably have the ability to pay their creditors back due to their favorable income, while allowing those without the means to pay back creditors to proceed under what is known as a safe harbor.
There are a range of different factors that can affect the means test. Family size is particularly important when calculating whether a person is realistically gathering wealth, or requires a higher income in order to appropriately support their family. Abuse may not be presumed, which compromises a bankruptcy, if a debtor's family is larger compared to an otherwise abusive debtor, according to family adjustments.
Other major factors that can influence the results of a means test can include write-offs for living expenses, insurance coverage policies, the cost of reasonable self-defense devices, and even charity contributions, so long as the organization is considered tax-exempt.
For more information about how the means test is administered and what it means to a particular debtor, contact a bankruptcy attorney.
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