Means Test for Chapter 13 Bankruptcy


Most people are familiar with the need to pass a means test in Chapter 7 bankruptcy. The means test in Chapter 7 bankruptcy is to determine your eligibility in filing Chapter 7 as this type of bankruptcy is only permissible for those whose average household income is below the mean set by the state. However, when it comes to filing Chapter 13 bankruptcy, the means test does not compare your income with the average income for the state where you live and is for an entirely different purpose.

The means test in Chapter 13 bankruptcy is to determine how much disposable income you have to pay off your debts every month because Chapter 13 is where you follow a court-approved payment plan over 3 to 5 years to clear your debts. The means test involves filling up form B22 with details of certain expenses grouped under different categories such as food, clothing, transportation, housing and so on. Against each category you fill in the amount you have been spending for these expenses per month.

Your expenses are compared with an amount the IRS determines for each expense, which happens to be very minimal. For example, the IRS may allot $1,500 for housing per month. In most parts of the United States, $1,500 per month for housing is very low. But there is no changing this amount. If you intend to file a Chapter 13 bankruptcy, you will have to abide by this limit. In other words, any amount above $1,500 per month will go towards repaying your creditors.

But what if you have to pay rent for $2,500 each month? There are 2 choices – either move into cheaper accommodation or move your expenses around i.e. cut down on some other expenses and move the money towards paying your rent.



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