Chapter 7 Means Test

When a person is looking to file a Chapter 7 bankruptcy in Chester County, they must be qualify on the "means test".  It is a scary term (is it "mean" to people?) and sometimes imposing.  Here is some background:

A person in Chester County and file a Chapter 7 first if their debt is primarily consumer debt.  Debts are divided into consumer, business, and neither (i.e. taxes).  This comes under 707(b)(1) of the Bankruptcy Code.  The total debt is consumer debt when "more than 50%" of the total debt is primarily debt.  Consumer debt is normally personal, family or household debt and also includes mortgage debt.  In the past, some Trustees tried to count the number of debts, rather than their percent.  That has been determined to be improper.  

Expenses in a Chapter 7 Means Test

Expenses are taken from tables that must be current the day of filing.  These expenses are broken down by the national standard, local standard, and other necessary expense deductions under the IRS expense figures.  They are pegged to the "household size", which includes the Chester County debtor, spouse, and dependents.  

Companions or emancipated children are not to be used to calculate expense figures -- the basic standard is if they are not listed as dependents on a tax return, they cannot be used (see In re O'Conner, 2008 WL 4516374 where the court excluded an adult nephew in the household).  This is a troubling issue for most Chester County bankruptcy lawyers because the actual number of people in a household (especially in this type of economy where adult children are living at home longer) can be different from the number of people that you can apply the household exemptions.  

Other necessary expenses have to meet the "Necessary Expense Test", that includes expenses used for the health and welfare of the household or be used for the "production of income" (i.e. expenses you use to maintain your business).