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Means Test | Asheville, NC

What is the means test?

The Means Test is an income test that may serve as a gateway to bankruptcy. Our experience has been that few clients are prevented from filing Chapter 7 due to the Means Test. Even so, sometimes issues arise. Below, we briefly cover when the Means Test applies and issues that may come up.

Does the Means Test Apply?

  1. First, the Means Test does not apply unless more than 50% of your total debt is consumer debt. A consumer debt is a debt incurred primarily for a personal, family, or household purpose. Business debts, tax debts, and tort claims are not consumer debts.
  2. Secondly, the Means Test does not apply to an individual or married couple if the "Current Monthly Income" (CMI) of that individual or married couple is less than the median income of a household of the same size in North Carolina. The following chart sets out the median income for households in size from 1 to 6. Add $8,100.00 for each person in excess of six.

This chart outlines the median income by household size in North Carolina as of May 1, 2014.

# of Earners 1 2 3 4 5 6
Median Income $41,333 $52,419 $55,855 $67,116 $75,216 $83,316

Means Test Issues

How your income is calculated:

The determination of the CMI is not calculated from your current income, but rather is based on your average income received during the six-month period ending on the last day of the month prior to filing the bankruptcy. Furthermore, certain income, such as social security benefits, are not included in the calculation of median income. The rules on calculating CMI are complicated and are not covered in this basic overview. You must be able to provide us with accurate information and documentation concerning your income for the prior six months, as well as a prediction of future income.

Establishing that you have insufficient funds to pay your debts:

Even if your CMI exceeds the median income, you can pass the Means Test by establishing that your expenses leave you with insufficient funds upon which to pay a significant amount on your debts. The rules on determining these expenses are quite complicated and are not covered in this basic overview.

Special Circumstances:

If you do not "pass" the means test after deducting the standard expenses from your income, a "special cirucmstances" exception may apply.

Special circumstances are those circumstances which justify additional expenses not included in the approved expenses set out on the Bankruptcy Code or which justify adjustments to the calculation of current monthly income. There must be no reasonable alternative to the additions or adjustments. Examples of special circumstances are a serious medical condition or a call to active duty in the Armed Forces. In order to establish special circumstances, you must itemize each additional expense or adjustment to income and provide both documentation for such expense or adjustment and a detailed explanation of the special circumstances that make such expense or adjustment to income necessary and reasonable. You must attest under oath to the accuracy of any information provided to demonstrate special circumstances.


Example 1

John Smith is a single man who lives alone. He is unemployed from May 25, 2013, to July 30, 2013, and receives no benefits. He obtains a job on August 1, 2013, at an annual salary of $54,000.00. He files a Chapter 7 bankruptcy on December 15, 2013. His gross income from August 1 to November 30 is $18,000.00. To calculate John Smith's income under the bankruptcy law, we need to take the following steps.

  1. Determine the 6 month period that we use to calculate John's CMI. He filed in December 2013, so we look at the six month period that ended the month prior to the bankruptcy filing. In this case, we look to the income received from June - November 2013.
  2. Determine how much John earned in each of those months. He was unemployed in June and July, so he had no income for those two months. He has an annual salary of $54,000.00, which is $4,500.00 per month ($54,000/12 = $4,500). He was employed August, September, October, and November, so we multiply $4,500.00 x 4 months, which is $18,000.00. $0.00 from the first two months plus $18,000.00 from the last two months is $18,000.00 total for that six month period.
  3. Multiply by 2 to convert to an annual amount. $18,000.00 x 2 = $36,000.00.
  4. Compare to the median income for John's household size. The median is $41,333.00. John's annualized income is less than the median, so he "passes" the Means Test.

Note how this example will differ if John Smith waits until January 2, 2014 to file bankruptcy.

Waiting until January, means that the 6 month period we use to calculate John's CMI will be July - December. John was receiving $4,500.00 per month for 5 of those months and $0.00 for 1 month. The total for that 6 month period is $4,500.00 x 5 = $22,500.00. We then multiply $22,500.00 x 2 to annualize John's income. The annual amount is now $45,000.00. Now, John's income is above the median, so to determine if John "passes" the Means Test we must analyze his expenses under the rules set out in the Bankruptcy Code.

Example 2

Joe and Jane Doe have 2 children. Jane works for the State and earns a flat salary of $36,000.00 ($3,000.00 per month). Joe was working for a telecom company and was earning $78,000.00 per year. On April 30, 2013, he is in a serious automobile accident and is permanently disabled. He receives gross private disability income of $3,500.00 per month for 6 months (May – October). Effective December 1, 2013, he will start receiving social security disability benefits of $2,200.00 per month and his private disability will stop. If they file bankruptcy on November 15, 2013, their income from May 1 to October 31 is $39,000 (see calculation below). On an annual basis, the debtors' income is $78,000, which exceeds the median income $67,116.00 for a household of 4. However, if they wait until February 1, 2014, to file, their income for the six months period of August 1 to January 31 will be below the median. The calculations are set forth below.

  May 1 - Oct. 31 Aug. 1 - Jan. 31
Wife's Income $18,000 ($3,000 x 6) $18,000 ($3,000 x 6)
Husband's Income $21,000 ($3,500 x 6) $10,500 ($3,500 x 3)
Total 6 month Income $39,000 $28,500
Annualized Income $78,000 $57,000


Remember social security is not included in CMI. The annual income is $57,000, and is below the median income.


Important Lessons

From these two examples, the following lessons are learned:

  1. Calculating median income is technical and sometimes complicated.
  2. Timing can be crucial in passing the Means Test.
  3. The client must provide very reliable information about past income, and in some cases, a prediction of future income.

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Westall, Gray & Connolly, P.A.

 81 Central Ave, Asheville, NC 28801
 Office - (828) 254-6315
 Fax - (828) 255-0305
Hours: M-F 8:30am - 5pm

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