Chapter 13 Bankruptcy Means Test

Course: Estate Planning
Lesson 13: Case Study Online

Student Question:


I am a little confused how one set amount – $100 – is the threshold for means testing a bankruptcy petitioner, when the amount of debt a borrower may owe can vary by large amounts. It would seem the amount left over (income minus allowable expenses) as a percentage of either income or debt owed would be a more accurate test?



Instructor Response:

Hi Gerry,

The purpose of the means test is to force debtors to seek reorganization under Ch. 13 if they have sufficient cash flow to eventually pay off the debt.  The threshold is relatively strict, free cash of $100 or less is frequently the threshold but can vary by facts and circumstances. 

Onward and Upward,