How does the Chapter 7 means test work?

How does the Chapter 7 means test work?

The means test was designed to limit the use of Chapter 7 bankruptcy to those who can’t pay their debts. It does this by deducting specific monthly expenses from your “current monthly income” (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly “disposable income.”

What is a Chapter 13 means test?

The purpose of the means test in Chapter 7 bankruptcy is to determine if you have enough income to repay some of your debts through a Chapter 13 bankruptcy repayment plan. If your income is greater than the median income in your state, you must take the means test.

What is your net monthly income?

Net Monthly Income (NMI) Amount of monthly income remaining after all deductions have been taken. (This amount is sometimes referred to as “take-home” pay.) Net Annual Income (NAI) Amount of income that one has to spend in a. year after all deductions have been taken.

When do you pass the Chapter 7 means test?

Debtors With Below Median Incomes. If your average income for the six months prior to filing bankruptcy was below the median income of your state, then you automatically pass the means test and qualify to file a Chapter 7 bankruptcy. You do not need to fill out the rest of the means test form.

When do you have to do the means test?

If your completed Form 122A-1 shows your income is higher than the median, you must file Form 122A-2. This is the actual “means test” — the calculations you enter on this form determine how much money you have available to pay off other debts.

What is current monthly income for the means test?

For means test purposes, CMI is defined as the average monthly income received from all sources derived during the six-month period ending on the last day of the month before your bankruptcy filing date. This is also known as the “look back period.”.

When was the means test implemented in bankruptcy?

The Means Test Implemented by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the Means Test is a required form and set of calculations that determines whether a presumption of abuse exists for a Chapter 7 debtor in a consumer bankruptcy case.

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