Means Test

From Wikipedia, the free encyclopedia The term means test refers to an investigative process undertaken to determine whether or not an individual or family is eligible to qualify for help from the government.

United States - Means testing "refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts."[4]The means test is perhaps best recognized in the United States as the test used by courts to determine eligibility for Title 11 of the United States Code Chapter 7 or Chapter 13 bankruptcy.

During the Great Depression, the test was used to screen applicants for such programs as Home Relief in the United States, and starting in the 1960s, for benefits such as those provided by the Food Stamp Program.

In 1992, third-party Presidential candidate Ross Perot proposed that future Social Security benefits be subjected to a means test; though this was hailed by some as a potential solution to an impending crisis in funding the program, few other political candidates since Perot have publicly made the same suggestion, which would require costly investigations and might associate accepting those benefits with social stigma.

In 2005, the United States substantially changed its bankruptcy laws, adding a means test to prevent wealthy debtors from filing for Chapter 7 Bankruptcy. The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who make above an income, as calculated by the Code, above the debtor's state's median income to an income based test. This test is referred to as the "means test." The means test provides for a finding of abuse if the debtor's income is higher than a specified portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances."[5] Debtors whose income is below the state's median income are not subject to the means test. Notably, the Code calculated income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code’s “current monthly income” as “presumed income.” If the debtor's debt is not primarily consumer debt, then the means test is inapplicable.

Thus, the means test is "a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. (These filers may use Chapter 13 bankruptcy to repay a portion of their debts, but may not use Chapter 7 to wipe out their debts altogether.)"[6] The bankruptcy means test is rather complex but quite generous and most debtors have no trouble meeting its requirements. Consumers can use a means test calculator to determine their eligibility. Others have suggested that the means test is not all that fair or equitable, and have somewhat cynically pointed out that the reference to consumer protection in the bankruptcy act is ironic at best, since those with primarily consumer debt are required to pass a means test while businesses are not. What is undeniable is that it is complex, and the terms that govern many parts of it - including those terms that control whether it applies at all - are of unsettled definition. [7]

Source: http://en.wikipedia.org/wiki/Means_test