What is the “means test”?

Under the new bankruptcy law, if your income is over the median family income in your state, you will have to pass the “means test,” if you want to file for Chapter 7 bankruptcy instead of Chapter 13. Under the “means test,” you have to subtract your necessary expenses such as food and transportation (the amounts for which are set by the IRS) and your secured debts (mortgage payments, car payments, child support, student loans, alimony) from your monthly income. If, after you’ve subtracted these amounts, you have over $166 in “disposable income,” you’ll have to file for Chapter 13 bankruptcy; if you have less than $100 in disposable income, you can file for Chapter 7. If it’s between $100 and $166 in disposable income per month, a new, more complicated formula is used to determine your eligibility for Chapter 7 bankruptcy.