Chapter 13 and the means test (Form 122C)

The means test also plays a role in Chapter 13 bankruptcy, but its purpose is slightly different than in Chapter 7 bankruptcy.

In Chapter 13 bankruptcy, the means test is used to determine the debtor’s disposable income, which is then used to calculate the amount of their repayment plan. Unlike Chapter 7 bankruptcy, where most unsecured debts are discharged, in Chapter 13 bankruptcy, the debtor repays their debts over a period of three to five years.

The means test in Chapter 13 bankruptcy is similar to the means test in Chapter 7 bankruptcy in that it compares the debtor’s income to the median income in their state. However, in Chapter 13 bankruptcy, passing the means test does not necessarily determine eligibility for the bankruptcy option. Instead, it is used to calculate the amount of disposable income that must be devoted to the repayment plan.

If the debtor’s income is below the median, they can propose a repayment plan based on their actual expenses and debt payments. If their income is above the median, they must use IRS expense standards to calculate their disposable income. They may be required to commit more of their disposable income to repay their debts over the course of the plan.

The purpose of the means test in Chapter 13 bankruptcy is to ensure that the debtor is committing as much of their disposable income as possible to repay their debts, while still allowing them to maintain a reasonable standard of living. The means test is a complicated calculation, and an experienced bankruptcy attorney can help debtors navigate the process and propose a repayment plan that is feasible for their financial situation.

Here are some additional details about the means test in Chapter 13 bankruptcy:

• The means test in Chapter 13 bankruptcy is also known as the “disposable income test,” because it determines how much disposable income the debtor has to devote to repaying their debts.
• The disposable income test is based on the debtor’s current monthly income, which is calculated based on the average income they received over the six months prior to filing for bankruptcy. This income is then compared to the median income in their state for a household of the same size.
• If the debtor’s income is below the median, they can propose a repayment plan based on their actual expenses and debt payments. This plan must last for three to five years and must pay back a portion of their unsecured debts.
• If the debtor’s income is above the median, they must use IRS expense standards to calculate their disposable income. They may be required to commit more of their disposable income to repay their debts over the course of the plan. This plan must also last for three to five years and must pay back a portion of their unsecured debts.
• In some cases, the debtor may be able to argue for an exception to the means test if they have special circumstances that justify additional expenses, such as medical expenses or caring for a disabled family member.
• Unlike Chapter 7 bankruptcy, which requires debtors to sell non-exempt assets to pay back their debts, Chapter 13 bankruptcy allows debtors to keep their assets, as long as they continue making payments under their repayment plan.
• The means test in Chapter 13 bankruptcy can be a complex calculation, and an experienced bankruptcy attorney can help debtors navigate the process and propose a repayment plan that is feasible for their financial situation.

It’s worth noting that while Chapter 13 bankruptcy can be a good option for debtors who don’t qualify for Chapter 7 bankruptcy or who want to keep their assets, it does require a significant commitment to repaying debts over a period of three to five years. Debtors should carefully consider their options and work with an experienced bankruptcy attorney to determine whether Chapter 13 bankruptcy is the best choice for their financial situation.