Under the 2005 Amendments, most individuals or couples filing for protection under either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy must now meet certain eligibility requirements under a “Means Test.” Under the Means Test, you must first determine if your average monthly income for the last six months is below the median income for your state, based upon the size of your household.
If your average monthly income for the past six months is below the median income for your state, you have passed the first hurdle, and so long as you meet the other eligibility requirements, you can file for protection under Chapter 7 Bankruptcy. If your average monthly income for the past six months is above the median income for your state, you must proceed to the second hurdle – do you have the ability to repay a portion of your debt?
The second hurdle is the determination of your ability to repay a portion of your debt. Under the new law, you are required to perform an analysis of your income and expenses (based upon the Internal Revenue Service guidelines for your state) – the Means Test. If, after completing the Means Test analysis, it is determined that your net disposable income is less than $150.00 per month, you have passed the second hurdle and you can proceed with your filing so long as you meet the other requirements.
If you can afford to repay at least $200.00 per month, or $12,000.00 over a five year period), you are not eligible to file a petition for protection under Chapter 7 Bankruptcy and, you shall be required to file a petition under Chapter 13 Bankruptcy, in which you shall be required to repay a portion of your debt over a period of up to five years.