Means Test for Chapter 7 Bankruptcy: Do You Qualify?
The means test is the gateway to Chapter 7 bankruptcy. Before you can file Chapter 7 and have your debts discharged quickly, you must demonstrate that your income meets certain requirements. This guide walks you through exactly how the means test works and how to determine if you qualify.
Why Does the Means Test Exist?
The means test was introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Congress created it to prevent high-income individuals from using Chapter 7 to wipe out debts they could actually afford to repay. The test compares your income to the median income in your state. If you earn less than the median, you automatically qualify for Chapter 7. If you earn more, you must pass a more detailed calculation. For an overview of the entire bankruptcy process, read What is Bankruptcy? Complete Beginner’s Guide.
Part 1: Calculate Your Average Monthly Income
Add up all income you received over the past 6 calendar months from all sources including wages and salaries, self-employment income (gross, before expenses), rental income, regular contributions from household members, unemployment compensation, pension and retirement payments, and interest and dividends. Note: Social Security income is excluded from the means test calculation. Divide the total by 6 to get your average monthly income, then multiply by 12 for your annualized figure.
Part 1: Compare to State Median Income
The U.S. Trustee Program publishes updated median income figures for each state regularly. If your annualized income is below the state median for your household size, you automatically pass the means test and qualify for Chapter 7. If your income is above the median, you must continue to Part 2.
Part 2: The Disposable Income Calculation
If your income exceeds the state median, you must complete the full means test calculation, which deducts allowed expenses from your income to determine your monthly disposable income. Allowed deductions include IRS national standards for food, clothing, and personal care; local standards for housing and transportation; monthly payments on secured debts (mortgage, car loan); priority debts such as taxes and child support; healthcare expenses not covered by insurance; and child care expenses.
The 60-Month Test
After deducting all allowed expenses, your remaining monthly disposable income is multiplied by 60. If the result is less than $8,175, you pass the means test and can file Chapter 7. If it is more than $13,650, you fail and must file Chapter 13. If it is between those amounts, a further calculation determines if your disposable income can repay 25% or more of your non-priority unsecured debts.
What If You Fail the Means Test?
Failing the means test does not mean you cannot get bankruptcy relief — it means Chapter 7 is not available to you. You would need to file Chapter 13 instead, which involves a 3 to 5 year repayment plan. Read Chapter 7 vs Chapter 13 Bankruptcy to understand how Chapter 13 works and whether it could still provide the relief you need.
Special Circumstances
If you have experienced unusual expenses or income changes not reflected in your 6-month average, you may be able to claim special circumstances. Examples include recently losing your job, unusually high medical expenses, or a significant drop in business income. You must document these circumstances for the court.
Business Debtors Exception
If more than 50% of your debt is business debt rather than consumer debt, the means test does not apply to you. You can file Chapter 7 regardless of your income level.
Common Mistakes on the Means Test
- Including Social Security income (it should be excluded)
- Using gross income instead of correct figures for self-employment
- Using the wrong state median income figures
- Failing to claim all allowable expense deductions
- Using the wrong household size
Read How to File Bankruptcy Without a Lawyer for guidance on completing the means test correctly.
Conclusion
The means test is simply a financial threshold designed to ensure Chapter 7 is used by those who genuinely need it. For many people with average or below-average incomes, passing the test is straightforward. If you pass, the next step is understanding What Debts Can Be Discharged in Bankruptcy and protecting your property with Bankruptcy Exemptions by State.
