The Bankruptcy Means Test
Chapter 7 vs. Chapter 13
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a means, or income, test. This test will be applied to
bankruptcy petitions that are filed on or after October 17, 2005, if the debtor is
an individual with primarily consumer debts. The test will determine if
the debtor is eligible for Chapter 7 or must file under
Chapter 13 for relief. If you have questions regarding the means test contact a bankruptcy
lawyer in Houston or Beaumont at any time.
How the Test Works
Your current monthly income (CMI) equals the average monthly gross income
that you, or if joint filing, you and your spouse, received from all sources.
This includes anything paid by any other entity on a regular basis for
the household expenses of you, your spouse and your dependents, over a
six-month period immediately preceding the bankruptcy filing. Social Security
benefits and payments to victims of war crimes, crimes against humanity,
and terrorism may be excluded.
As published by the U.S. Bureau of Statistics, the means test is adjusted
for family size. Generally, allowable expenses include living expenses.
These living expenses are determined under the IRS National Standards
for Allowable Living Expenses based on family size and gross monthly income.
An additional 5 percent of the National Standards food and clothing categories
is allowed if you can demonstrate that this additional amount is reasonable
Under the IRS Local Standards Housing and Utilities Allowable Living Expenses
for your state and county, you may be granted an additional expense allowance
for actual home energy expenses if you can document the expenses and demonstrate
that they are reasonable and necessary. The
IRS Allowable Living Expenses for Transportation determines the additional expenses, related to vehicles, allowed for the
home. The actual amounts of other necessary expenses, including:
- Charitable contributions not to exceed 15 percent of your gross income
- Costs of child care, including day care and babysitters
- Care for elderly, invalid, or handicapped members of your immediate family
- Elementary or secondary school expenses for each dependent child under
18 years old
- Health insurance, disability insurance, and health savings account expenses
- Federal, state, and local tax payments, including FICA and Medicare secured
- Administrative expenses if you're eligible to file Chapter 13
- Reasonably necessary expenses to keep you and your dependents safe from
The means test is a difficult and complicated issue. If you need assistance
in this area, a bankruptcy attorney from the Maida Law Firm, P.C. can
walk you through the process and can help you do the math. Simply bring
the firm your data and they can help you begin the process of
bankruptcy. The Maida Law Firm, P.C. serves clients in both Beaumont and Houston*, Texas, so
*Houston office available by appointment only.