Litmus Test for Bankruptcy

The "means test" for bankruptcy is a "litmus" test for whether a taxpayer qualifies for the Currently Non-Collectible status with the IRS.

The "means test" is a function of bankruptcy that provides the minimal level of income that a household can generate in order to qualify for Chapter 7 Bankruptcy (i.e. liquidation of assets and debts).


The Bureau of Labor Statistics are used to determine the level of income allowed (based on number in family and the state you reside) to be able to qualify for Chapter 7. Also, these same BLS data is used for IRS Allowable Living Expenses for determination of a client's ability to pay.
Generally (and client has to verify with documentation- our 90% question today), if a person qualifies for Chapter 7 under their circumstances (and these may be temporary circumstances)- they would qualify for CNC (subject to documentation and inability to liquidate assets/full payment of liquid assets).


For example, if a 2-person household in NC has $40,000 in income- $52,355 would be the amount of income they would normally be allowed to have to file for Chap 7- also, this is the maximum ALEs that would correlate to a potential CNC.

http://www.irs.gov/pub/irs-pdf/p908.pdf