Understanding the Means Test in Tennessee Bankruptcy

Understanding the Means Test in Tennessee bankruptcy is essential for individuals considering filing for bankruptcy protection. The means test helps determine whether a debtor's income qualifies them for Chapter 7 bankruptcy or if they should opt for Chapter 13 bankruptcy instead.

The means test was established under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to ensure that high-income individuals cannot easily eliminate their debts through Chapter 7 bankruptcy. In Tennessee, the means test evaluates a debtor's income against the median income for households of the same size in the state.

To start the means test, a debtor will calculate their current monthly income (CMI). This figure includes all sources of income, such as wages, bonuses, unemployment benefits, and rental income, averaged over the six months prior to filing for bankruptcy. Once the CMI is determined, it is compared to the median income for Tennessee.

If the CMI is below the Tennessee median income for your household size, the debtor automatically qualifies for Chapter 7 bankruptcy. However, if the CMI exceeds the median, the individual must complete additional calculations.

The next step involves deducting allowable expenses from the CMI. These expenses may include living costs, such as housing, utilities, transportation, and healthcare, as well as secured debts like mortgage payments or car loans. The remaining income after these deductions will be analyzed to determine disposable income.

Disposable income plays a critical role in deciding between Chapter 7 and Chapter 13 bankruptcy. If the disposable income is sufficient to repay a significant portion of debt, it may be more appropriate for the debtor to file under Chapter 13, which establishes a repayment plan over three to five years.

Exceptions to the means test may apply in certain cases. For example, individuals whose debts are primarily non-consumer debts, such as business debts, may not be required to complete the means test. Additionally, debtors who are disabled, elderly, or in active military service may also have different conditions affecting their eligibility.

Understanding the means test is crucial, as it not only affects eligibility but also the outcome of the bankruptcy filing. Consulting with a qualified bankruptcy attorney in Tennessee can provide guidance and ensure that all aspects of the means test and subsequent bankruptcy processes are accurately completed.

In summary, the means test is a pivotal factor in determining whether an individual in Tennessee can file for Chapter 7 or needs to consider Chapter 13 bankruptcy. Being informed about the means test can help navigate the complexities of bankruptcy law and achieve a fresh financial start.