The Chapter 7 means test determines whether your income qualifies you for liquidation bankruptcy or whether you must file Chapter 13 and repay creditors over time. Understanding how the means test calculations work helps you assess your eligibility and plan your bankruptcy strategy.
The Purpose of the Means Test
Congress implemented the means test in 2005 to prevent abuse of Chapter 7 by debtors who could afford to repay at least some of their debts. The test compares your income to state median figures and examines whether you have sufficient disposable income to fund a Chapter 13 repayment plan. Those who fail the test presumptively face abuse and must file Chapter 13 instead.
The means test applies to consumer debtors, meaning those whose debts are primarily personal rather than business-related. Business debtors and those whose income falls below the state median may be exempt from the full calculation, though all debtors complete initial income screening.
Step One: Comparing Income to State Median
The means test begins by comparing your current monthly income to the median income for households of your size in your state. Current monthly income means your average monthly income over the six full calendar months before filing, not your income at the moment of filing. This lookback period captures your recent financial picture.
If your current monthly income multiplied by twelve falls below the state median, you pass the means test and qualify for Chapter 7 without further calculation. Census Bureau data and IRS statistics determine median income figures, which adjust periodically. Checking current median figures for your state and household size reveals whether you automatically qualify.
Step Two: Calculating Disposable Income
Those whose income exceeds the state median must complete the full means test calculation. This involves subtracting allowed expenses from your current monthly income to determine disposable income available to repay creditors. Allowed expenses follow specific IRS standards rather than your actual spending, though some expenses like mortgage payments and secured debt payments use actual amounts.
Expense categories include housing and utilities, transportation, food and clothing, healthcare, and various other living expenses. The test allows additional deductions for certain items like mandatory payroll deductions, childcare, health insurance, and disability-related expenses. Understanding which expenses qualify helps maximize your deductions.
Determining Whether You Pass
After calculating your monthly disposable income, the test applies thresholds to determine whether presumption of abuse arises. If your disposable income multiplied by 60 is less than a specified minimum amount, no presumption of abuse exists and you qualify for Chapter 7. If it exceeds a higher threshold, presumption of abuse applies and Chapter 7 is unavailable absent special circumstances.
Between these thresholds, the test compares your projected payments to a percentage of your unsecured debts. If you could pay at least 25% of your unsecured debts through a five-year Chapter 13 plan, presumption of abuse applies.
Special Circumstances and Rebuttal
Even when the means test calculations create a presumption of abuse, you may rebut that presumption by demonstrating special circumstances that justify additional expenses or adjustments to income. Documented circumstances like serious medical conditions, military service calls to active duty, or other unusual situations may support rebuttal arguments.
Timing considerations also affect means test outcomes. Because the test uses six-month income averages, changes in your income situation can affect results. Consulting with a bankruptcy attorney helps identify the optimal filing timing and strategies for your particular circumstances.