In 2005 the U.S. Congress established new restrictions on individuals filing Chapter 7 bankruptcy to eliminate their unsecured debts. One of the new requirements of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is that an individual or family must pass what is known as the “Means Test” before being allowed to eliminate personal debt through a Chapter 7 filing if the individual or family makes over the median income level for their particular household size. The Means Test is a test to determine whether the individual or family should have enough money available, after deducting normal and reasonable monthly expenses, to make some minimal payment to creditors in a Chapter 13 Repayment Plan. If an individual or family makes over the median income level and does not pass the Means Test, then, with limited exceptions, that individual or family will not be allowed to file a Chapter 7 bankruptcy and will most likely need to file a Chapter 13 bankruptcy.
The Means Test allows individuals and families to take deductions from their gross income for monthly expenses such as food, clothing, and other miscellaneous items, out-of-pocket medical expenses, utilities and electricity, rent or mortgage payments, transportation expenses, car payments, taxes, health insurance, life insurance, child care, private school tuition, and certain telecommunication expenses. Other deductions may also be taken so long as the individual or family can show that they are reasonable and necessary.