Means Test

A Means Test is a financial evaluation process to ascertain whether an individual or household qualifies for specific benefits (such as Medicaid or food stamps), assistance programs (like housing subsidies), or legal proceedings (such as bankruptcy) based on income and assets. This test ensures that resources are allocated to those with the greatest financial need.
The Means Test, a pivotal part of bankruptcy proceedings, was introduced as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. It serves as a guide, empowering individuals to understand whether they are eligible to file for Chapter 7 bankruptcy, which allows for the discharge of certain debts, or if they must instead file for Chapter 13 bankruptcy, which requires a repayment plan.
The Means Test calculates an individual’s average monthly income over the six months before filing for bankruptcy and compares it to their state’s median income. If the individual’s income is below the state median, they typically qualify for Chapter 7. However, suppose their income exceeds the state median. In that case, they must proceed with the second part of the test, which deducts certain expenses to determine if the individual has sufficient disposable income (the income left after paying for necessary living expenses) to repay a part of their debts through a Chapter 13 plan.