By Jeff Curl

I have seen my fair share of clients that spent many hours researching bankruptcy before coming in for a consultation. They come across the numerous articles and blogs about something called the Bankruptcy Means Test. Sometimes they even find online means test calculators where they attempt to plug in their own numbers, but they are not sure if they did it right.

Let me stop you right there. I was at a conference recently where I sat in a room with over 1,000 other bankruptcy attorneys. Judges, trustees and experienced attorneys discussed (and disagreed about) the means test for several hours. It’s far more complicated than it looks. The laws constantly change as to what can be deducted as an expense, and what must count as income. Moreover, local custom and practice varies greatly. Doing your own online calculation may give a false sense of hope, or a false sense of doom.

There is a misconception among my clients that discovered the means test. They believe if they pass the means test, they qualifiy for Chapter 7 as far income is concerned. That is not the case. Your income is measured twice in bankruptcy; once historically, and once in the present.

The means test generally looks backwards. It takes a snapshot of the last six months of you income and expenses. Many of the expenses are determined by IRS standards. You are given so much allowance for food, rent, and for owning and operating a vehicle. Yet, some expenses are real with slight adjustments, such as medical expenses and mortgages.

Sometimes a person has been unemployed for a year and living off of the credit cards. They score a decent paying job and think, “Great, I had no income for the past six months. That means I qualify for Chapter 7 bankruptcy. I’ll just get rid of that debt in bankruptcy and start fresh with my new income.” Not so fast.

A debtor must also give an accounting of their income and expenses on something called Schedules I & J. These two schedules look at income and expenses in the present and going forward. These numbers are based on actual income, and actual expenses that are reasonable and necessary. You can pass the means test with flying colors, and “fail” Schedules I & J miserably. By “fail,” I mean that you have too much income. If your income and expenses on Schedules I and J reveals that you have more income than expenses, and that excessive income is high enough, you will be disqualified from filing Chapter 7 bankruptcy.

Lesson here: Bankruptcy is a complicated process and is not simply a matter of filling in forms. If you prepare your petition improperly, the consequences can be severe. There is a not a bankruptcy attorney that has not seen a party representing himself or herself receive a good lashing from the trustees. Or cases dismissed for both easily preventable mistakes and deeply complicated issues that sometimes lead to dismissal or loss of assets. Seek the advice of competent counsel when contemplating bankruptcy.

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