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:
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.
Copyright © 2023. The Law Offices of Roger J. Yehl. All Rights Reserved.