If you’re considering Chapter 13 bankruptcy in the Charleston area, you’ve probably heard about something called the “means test.” Don’t worry. Despite its intimidating name, it’s simply a financial calculation that helps determine your bankruptcy options and payment plan structure.
What Is the Means Test?
The means test is a standardized formula that looks at your income and expenses to figure out what you can afford to pay creditors. Think of it as the court’s way of ensuring fairness: people who can afford to pay something toward their debts should do so, while those who truly can’t get and immediate fresh start with no required payments.
For Chapter 13 cases specifically, the means test serves two main purposes: it determines how long your repayment plan will last (either 3 or 5 years) and calculates your monthly payment amount.
Who Takes the Means Test?
Every individual filing for bankruptcy with primarily consumer debt must complete the means test, at least as to part one, which determines whether you are over median income or not. This includes most Charleston residents dealing with credit card debt, medical bills, personal loans, and similar obligations. Business debt cases (called “non-consumer cases”) follow different rules and the means test isn’t applicable to those cases.
How the Test Works
The means test uses a two-step process:
Step 1: Income Comparison
The court compares your average monthly income from the six months before filing to South Carolina’s median income for your family size. If your income is below the state median, you automatically pass and can choose between Chapter 7 or Chapter 13, provided you also pass the “Totality of Circumstances Test.“
Step 2: Disposable Income Calculation
If your income exceeds the state median, the test calculates your “disposable monthly income” by subtracting allowed expenses from your income, payments on priority debts (think taxes and child support), and payments on secured debts (like mortgage payments and car payments). As for expenses, these aren’t necessarily your actual expenses. The test uses standardized amounts for things like housing, transportation, and food based on Charleston area costs. Some categories of expenses (for example medical expenses) can be modified, and others can’t.
How It Affects Your Chapter 13 Plan
The means test results directly shape your repayment plan:
Plan Length: If your income is above the state median, you’ll have a 5-year plan. Below-median income typically means a 3-year plan, though you can voluntarily choose up to 5 years for lower monthly payments.
Payment Amount: Your calculated disposable monthly income helps determine your plan payment. For example, if the test shows you have $200 in disposable income, that’s what you’ll pay monthly to the trustee for your unsecured creditors. Then you must add other required components such as payment on secured debts and priority debts, trustee’s fees, and attorney’s fees, and this will be your minimum plan payment.
Creditor Payments: Your monthly payment first goes to secured debts (like car loans) and priority debts (like taxes), then to administrative expenses (trustee and attorney’s fees), then whatever remains goes to unsecured creditors.
Preparing for the Means Test
Be Accurate: Use precise figures. Estimates won’t cut it, and inaccuracies can delay your case or worse.
Document Everything: Keep receipts and records supporting your expense claims, especially if your actual costs exceed standard allowances.
Consider Timing: Since the test uses a six-month lookback period, the timing of your filing can matter. If you recently lost income or had unusual expenses, this might affect your results.
Don’t Manipulate: Never artificially inflate expenses or hide income. The court and trustee will scrutinize your information.
Common Charleston Concerns
Many Charleston residents worry the means test will force them into an unaffordable payment plan. In reality, the test is designed to be realistic about what you can actually pay while maintaining basic living standards. The standardized expense allowances often reflect local costs reasonably well.
If your actual necessary expenses exceed the standard allowances: perhaps due to medical conditions or other special circumstances: you may be able to argue for adjustments.
Getting Help
The means test involves complex calculations and legal nuances. Small mistakes can have big consequences for your case. If you’re considering Chapter 13 bankruptcy in the Charleston area, consulting with an experienced bankruptcy attorney can help ensure you understand your options and complete the process correctly.
At DeMott Law Firm, we help Charleston families navigate the means test and develop effective Chapter 13 strategies. The test might seem overwhelming, but with proper guidance, it’s simply one step toward your financial fresh start.
