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The Means Test and Your Household: Not As Simple As it Sounds

By Adam Mack, JD

When putting together your bankruptcy, one of the forms you need to compete is the Statement of Current Monthly Income and Means-Test Calculation.    The form, sometimes simply known as the “means test” helps the court determine what a debtor’s financial “means” or resources are.  The means test varies in the questions and information required depending on which bankruptcy chapter you file (i.e. Chapter 7, Chapter 13, Chapter 11, etc.).  One of the key things you need to establish on the means test is how many people are part of your household.

Easy right?  Not always.

What constitutes your household size is not as intuitive as you would assume.  It is a question of tax law.  Generally speaking, the US Trustee’s office uses IRS dependency tests to determine who is or is not a member of your household.  For more information, refer to IRS Publication 501.  This publication explains the IRS dependency tests.  A good rule of thumb is that, in most cases, if you can claim someone on your taxes, then you can claim them as a member of your household in the bankruptcy.

Why does it matter?  Your household size matters because it is the combination of you household size and gross annual income that determines how beneficial bankruptcy is for you.  If you are above the median income then you will not be permitted to file a Chapter 7 Bankruptcy.  If you are above the median income you can file a Chapter 13 Bankruptcy, but there is a legal presumption that you have disposable income.  You are then required to go through a thorough calculation that is akin to an income tax return that will determine your monthly disposable income.  If you do have a monthly disposable income (or MDI as it is often called) then you will have to pay that monthly disposable income every month as part of your plan payment.  Even if your monthly disposable income is only $200, over the life of an above-median Chapter 13 Bankruptcy, you will pay an additional $12,000!

Of course, the monthly disposable income calculation is not something that can or should be manipulated.  It is like a tax return in that way.  The numbers are what they are.  That said, just as many hire an accountant to do their taxes to make sure they get the full benefit allowed under the tax code, you owe it to yourself to hire a qualified bankruptcy lawyer to prepare your Statement of Current Monthly Income so you can get the full benefit of your bankruptcy under the Bankruptcy Code.


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!