The Means Test is a three step process which helps you determine if you can qualify for a Chapter 7 Bankruptcy.
STEP ONE: Determine your "monthly income"
STEP TWO: Compare that figure to the state median income.
STEP THREE: If your monthly income exceeds the state median income, then apply your actual income to a mix of actual
and standardized expenses to your previous average income
STEP ONE: Determine your "current monthly income", unless you are a disabled veteran.
If you are a disabled veteran, and the debts you wish to discharge were incurred while on active duty or you were engaged in homeland defense activities, the court is required to treat you as if your income is less than the state median. The law does not say what will happen if only some of your debts were incurred during active duty or while you were engaged in homeland defense activities, this area of the law is developing rapidly.
Current monthly income means your average income in the six months before you file bankruptcy. Importantly, this includes all types of income, taxable or not. Therefore, the amount that is included is NOT the amount that you take home after taxes but BEFORE.
NOTE, your income is broadly defined, it includes: wages, salary, tips, bonuses, overtime, and commissions, gross income from operating a business,profession, or farm, interest, dividends, and royalties, rents and other income from real property, pension and retirement income, regular contributions someone else makes to you or your dependents' household expenses, including child or spousal support, regular contributions of your spouse, if he or she isn't filing for bankruptcy with you, unemployment compensation, workers' compensation insurance, state disability insurance.
Income does not include: payments you receive under the Social Security Act (including Social Security retirement benefits, Social Security Disability Insurance, Supplemental Security Income, Temporary Assistance for Needy Families, and possibly state unemployment insurance) payments to you as a victim of war crimes or crimes against humanity, payments to you as a victim of international or domestic terrorism.
For example, suppose John earned $2,000 a month gross, but lost his job 2 months ago and has received no income since that time. So in the last six months John has earned $8,000.
To find out John's average income we take $8,000 divide it by 6 which equals $1333.33.
You may have noticed that the "current monthly income" could exceed the actual amount of money being taken home each month. This may be particularly true if you lost your job, as John did above.
STEP TWO: Compare that figure to the median family income in your state.
If your income is no more than the state's median income, your filing will not be presumed to be an "abuse" of the bankruptcy process.
However, if your income is significantly higher than your expenses, then you still might be forced into a Chapter 13.
In order to check your state median income check out the US Trustee's site at: www.usdoj.gov/ust http://www.usdoj.gov/ust (select Means Test Information) or the United State Census bureau at www.census.gov http://www.census.gov (select "State Median Income") from the home page.
If your income exceeds the state median income, then you have further steps to take.
NOTE: What do I do if I have a very large family (greater than four?) If there are more than four members of your family, you must add a set amount per person to the median income. As of this writing, this figure is $6,900.00
STEP THREE: Apply your actual income to a mix of actual and standardized expenses to your previous average income.
This step requires more computation than anything else. The official form (current as of this writing) can be found here.