The means test is part of the 2005 bankruptcy Reform Act, which is a governmental budgeting formula for debtors whose household income is above the median in their respective state, to see if they qualify for chapter 7. About 80% of my clients are below the median income, so we usually do not even need to do the means test.

The first thing to look at, is the median income figures which are published by the United States Trustee. (Ironically, the figures that are used, are compiled by this governmental office which actually becomes a party in litigation in case anything is contested.) It is important to understand that household size does not necessarily equate to family size; it is essentially who lives in your house on the date of filing, regardless of their status in your family. Interesting issues can arise in situations where there are roommates, although that can usually be construed in favor of the debtor.

The time frame that is used for income, is the six months prior to filing, excluding the month of filing. That is then doubled to annualize it. If your income varies, the means test changes from month-to-month. The figures typically get updated every autumn and spring.

If you are under the median, you can almost always proceed straight to a chapter 7 bankruptcy discharge. If you are over the median, then we go through the means test, for which we would typically set up a two hour initial appointment in the office and have you come prepared to it, and we go through six months of pay stubs, out of which almost everything gets deducted (except voluntary retirement contributions, and 401(k) loans), and then we deduct other expenses, some of which are standardized expenses that come off of a governmental chart, some of them are actual expenses, you get some allowances for expenses that you don’t even incur, and on the other hand, other actual expenses may not get deducted on the means test. We then come up with a bottom-line figure, and if that is negative, zero, or close enough to zero, and you pass the means test, although we still need to show on your actual budget that you can’t afford to pay your debt (that is called the “totality of the circumstances” test, which is usually not too hard to pass as long as you can pass the means test).

If you don’t pass the means test, then we look at other factors to see if there is something we can do to get you to beat the means test, the first of which is timing, because if your income is decreasing, you may not pass it this month, but you might pass it next month. There are also expenses that you can legitimately incur prior to filing bankruptcy to get yourself in a position to beat the means test. That is part of what a crafty lawyer can help you with. I have had many many clients come to me over the years, who said that they met with an attorney and could not beat the means test, and I figured out a way to get them to beat the means test.

If there is still absolutely no way we can get you to beat the means test, then we can talk about chapter 13, in which case we can still often wipe out a substantial portion of your debt, and in many cases, it makes sense to do a chapter 13 for other reasons as well. You still need to go through the means test form if you file a chapter 13, but in Minnesota it is considered a “starting point” in the analysis of your chapter 13 plan, which has basically been interpreted to mean that it is a meaningless form. The real issue of a chapter 13 plan, is that you need to pay what your actual budget says you can afford to pay, which again, with assistance of clever counsel, can still put you in a position to maximize your earnings and assets, and maximize the discharge of debt.

Tim Theisen is an Anoka bankruptcy attorney with offices in Maple Grove, Minneapolis, St. Paul, White Bear Lake, Buffalo, and Elk River.