Key Takeaways

  • The Means Test determines eligibility for Chapter 7 bankruptcy, primarily by comparing your income to your state's median income for a household of your size.
  • It's a two-part test: the first part assesses your current monthly income, and the second allows for deductions for allowed expenses.
  • Failing the Means Test doesn't always prevent bankruptcy; it often means Chapter 13 is the more appropriate path for debt relief.
  • Understanding the Means Test is crucial for navigating bankruptcy, and an experienced attorney is vital for accurate calculations and strategic advice.
  • Correctly documenting income, exclusions, and expenses can materially affect the outcome of the Means Test.

Overview: What the Means Test Does

The bankruptcy Means Test is a critical component of U.S. bankruptcy law, designed to prevent individuals with the ability to repay their debts from filing for Chapter 7 bankruptcy. Enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, its primary purpose is to ensure that Chapter 7, which liquidates non-exempt assets and discharges most unsecured debts, is reserved for those truly in need, while individuals with sufficient disposable income are directed towards Chapter 13, a repayment plan. Essentially, it's a gatekeeper, evaluating your financial capacity to determine which type of bankruptcy relief is appropriate for your situation.

Purpose and Background

Before BAPCPA, individuals could file for Chapter 7 bankruptcy regardless of their income, as long as they met other eligibility criteria. This led to concerns that some debtors were abusing the system by discharging debts they could reasonably afford to repay. The Means Test was introduced to address these concerns, aiming to create a more equitable and responsible bankruptcy system. It acts as a filter, directing debtors who earn above a certain income threshold and have disposable income to Chapter 13, where they commit to a 3-5 year repayment plan. For those who genuinely cannot afford to repay their debts, Chapter 7 remains an option.

The test is not a simple pass/fail; it's a multi-step calculation that considers various factors, including your household income, family size, and allowable expenses. It's designed to be a snapshot of your financial health, albeit a complex one, and can be influenced by recent income fluctuations, significant medical expenses, or other extraordinary circumstances.

The Two-Part Structure of the Means Test

The Means Test is typically broken down into two main parts: Part 1 (the Income Threshold Test) and Part 2 (the Disposable Income Test). Each part has distinct calculations and outcomes that determine whether you are presumed eligible for Chapter 7 or whether you must pursue Chapter 13.

Part 1: The Income Threshold Test

The first step of the Means Test compares your current monthly income (CMI) to the median income for a household of your size in your state. This initial screen determines whether you need to proceed to the more detailed Part 2.

What is Current Monthly Income (CMI)?

CMI is not simply your current paycheck. It's an average calculated over the six full calendar months immediately preceding the month in which you file your bankruptcy petition. For example, if you file in July, your CMI would be based on your income from January through June.

  • CMI includes nearly all sources of income, such as:
  • Wages, salary, tips, bonuses, and commissions
  • Income from self-employment or business operations
  • Rent and other income from real property
  • Interest, dividends, and royalties
  • Pension, retirement, and annuity income
  • Unemployment compensation
  • Workers' compensation and disability payments
  • Alimony and support payments received

Important Exclusions from CMI

  • Certain types of income are specifically excluded from the CMI calculation, which can significantly impact your eligibility:
  • Social Security benefits (including retirement, disability, and survivor benefits)
  • Payments to victims of war crimes or terrorism
  • Payments to victims of international terrorism
  • Child support payments received (though these are often considered in the second part of the test as a household expense)

State Median Income Data

The U.S. Trustee Program and Department of Justice publish updated state median income figures periodically. These figures vary significantly by state and by household size. For instance, the median income for a single-person household in one state can be much higher than in another. You can find the latest median income figures on the U.S. Trustee Program website.

Threshold Calculation Steps

  • Calculate your total gross income for the six-month look-back period.
  • Divide that total by six to arrive at your average monthly income.
  • Multiply your average monthly income by 12 to get your annualized current monthly income.
  • Compare your annualized CMI to your state's median income for a household of your size.

Outcome of Part 1

  • If your annualized CMI is below the state median income: you "pass" the first part of the Means Test and are generally presumed eligible for Chapter 7 bankruptcy. You typically do not need to proceed to Part 2.
  • If your annualized CMI is above the state median income: you "fail" the first part of the Means Test. This does not automatically disqualify you from Chapter 7. Instead, you must proceed to Part 2, the "disposable income" test, to determine if you have sufficient income to repay your debts. This is where the test becomes more complex and nuanced.
  • For many debtors, Part 2 will determine whether Chapter 7 is viable; otherwise Chapter 13 may be the appropriate alternative.

Part 2: The Disposable Income Test (for those above median income)

If your income is above the state median, the Means Test proceeds to a more detailed calculation of your disposable income. This part of the test allows you to deduct certain allowed expenses from your CMI to determine if you have enough leftover income to fund a Chapter 13 repayment plan.

Allowed Expense Categories

  • Part 2 includes a set of statutory, standardized, and necessary expenses you may deduct. Common categories include:
  • Food, clothing, and personal care allowances
  • Housing and utilities (mortgage/rent, property taxes, homeowner's insurance, gas/electric/water)
  • Out-of-pocket health care expenses and health insurance premiums
  • Transportation costs (standard IRS-based allowances for vehicle ownership and operation)
  • Taxes and mandatory payroll deductions
  • Secured debt payments (in some instances, especially for vehicle/house payments)
  • Childcare and child support expenses paid
  • Alimony and other court-ordered payments
  • Local standards for certain living expenses and payroll deductions

Common Deductions and How They Affect the Result

  • Part 2 allows deductions beyond those standard expenses in some cases. Examples include:
  • Actual monthly expenses that exceed national or local standards (with documentation)
  • Extraordinary medical expenses that are not covered by insurance
  • Work-related expenses and certain business costs for self-employed filers
  • Recent large, nonrecurring expenses that significantly reduced income during the look-back period

Calculating Disposable Income: Step-by-Step

  • Start with your CMI (average monthly income from the prior six months).
  • Subtract allowed statutory expenses using the Means Test schedule.
  • Subtract actual necessary expenses that are reasonable and documented.
  • The remaining amount is your disposable income available to pay unsecured creditors under a Chapter 13 plan.
  • If that number is negligible or zero, you may still qualify for Chapter 7.

Outcomes and What They Mean

  • Passing Part 1: presumed eligible for Chapter 7; proceed with filings if other eligibility criteria are met.
  • Failing Part 1 but passing Part 2 (i.e., little or no disposable income): you may still qualify for Chapter 7.
  • Failing both parts or showing significant disposable income: Chapter 13 is likely the appropriate path.
  • Even when Chapter 13 is required, it can provide structured relief through a 3-5 year repayment plan.

Common Special Circumstances

  • Recent income changes: temporary increases or decreases in income during the six-month look-back can change outcomes; courts may consider seasonality or recent job loss.
  • Large medical bills: extraordinary medical expenses can be deducted in Part 2 if properly documented.
  • Self-employed debtors: business expenses and irregular income require careful documentation and may use different calculations for certain deductions.
  • Split households or shared expenses: allocating household expenses among household members can affect CMI and deductions.
  • State law differences: exemptions and some calculations interact with state rules, so local context matters.

Preparing to Take the Means Test

Careful preparation is key. Collecting complete documentation and understanding which amounts count as income or allowable expenses will help avoid errors that could change the result of the test.

Documents and Information to Gather

  • Pay stubs covering the six months before filing
  • Tax returns for the prior one to two years
  • Bank statements for the look-back period
  • Documentation of retirement, pension, and annuity income
  • Proof of Social Security or disability income (if applicable)
  • Records of rental income and expenses
  • Records of child support and alimony received or paid
  • Medical bills and insurance statements for extraordinary expenses
  • Auto loans, mortgage statements, and lease agreements
  • Documentation of business income and expenses for the self-employed

Practical Steps Before Filing

  • Review income sources and identify any exclusions that could lower CMI.
  • Document allowable expenses with receipts and statements.
  • Consider timing the filing month if income fluctuates significantly.
  • Use an attorney or reputable Means Test calculator to avoid mistakes; see our guidance on how to file bankruptcy for step-by-step filing basics.

How an Attorney Can Help

An experienced bankruptcy attorney can help ensure accurate Means Test calculations, gather and present appropriate documentation, and argue for allowable deductions or special circumstances. Attorneys are particularly valuable when income is close to the median threshold or when there are complex deductions to claim.

Key Documents to Provide to an Attorney or Trustee

  • Six months of pay stubs or income records
  • Recent tax returns and W-2s/1099s
  • Bank statements for the look-back period
  • Documentation for any claimed exclusions (e.g., Social Security award letters)
  • Receipts or statements supporting extraordinary expenses
  • Proof of mortgage/rent, vehicle payments, and secured debt
  • Child support, alimony, and other court-ordered payment records

Common Pitfalls and Tips

  • Misclassifying income can inflate your CMI—be sure to list exclusions where applicable.
  • Failing to document extraordinary expenses can cost you a Part 2 deduction.
  • Using incorrect median income figures (out-of-date data) can lead to wrong conclusions—always use current figures.
  • Improperly timing the filing can alter the six-month look-back; plan filings carefully.
  • Overlooking self-employment deductions or business expenses can misstate disposable income.
  • Rely on professional help if your financial situation is complex; an attorney can prevent costly mistakes.

What Happens If You Fail the Means Test?

  • Failing Part 1 sends you to Part 2 for a more detailed disposable income calculation.
  • Failing Part 2 typically means you are presumptively ineligible for Chapter 7 and should consider Chapter 13.
  • Even if Chapter 13 is required, it can allow debt repayment over time and still provide substantial relief.
  • In some cases, you can rebut the presumption of abuse with documented special circumstances.

Timeline and Next Steps After the Means Test

  • Compile all documentation and prepare your bankruptcy petition and schedules.
  • File the petition; the Means Test results will be part of your filing package.
  • Attend the 341 meeting of creditors where the trustee may question Means Test items.
  • If Chapter 7, await discharge or resolution of any challenges; if Chapter 13, begin plan payments under a 3-5 year plan.

Additional Resources

Final Thoughts

The Means Test is a nuanced tool intended to direct debtors toward the form of bankruptcy relief that aligns with their ability to repay. Accurate income reporting, careful documentation of exclusions and allowable expenses, and timely legal advice can materially affect which chapter you file under and the protections you receive. If you are unsure how the Means Test applies to your circumstances, consult an experienced attorney to review your options and help you prepare your filing.

Frequently Asked Questions

What counts as "current monthly income" for the Means Test?

Current Monthly Income (CMI) is the average of your gross income from all sources over the six full calendar months prior to the month you file. It includes wages, self-employment income, rental income, pensions, unemployment, and similar receipts, while excluding certain items like Social Security benefits and some victim compensation payments.

What happens if my income is above the state median?

If your annualized CMI is above the state median for a household of your size, you proceed to Part 2 of the Means Test, which calculates disposable income by allowing certain standard and necessary deductions. Failing Part 2 generally points toward Chapter 13 as the likely option, though special circumstances may allow rebuttal.

Can medical expenses help me pass the Means Test?

Yes. Extraordinary medical expenses that are properly documented may be deducted in Part 2, reducing your disposable income and potentially allowing you to qualify for Chapter 7 despite a higher CMI.

Should I consult an attorney before filing?

Consulting an attorney is strongly recommended. An attorney can accurately calculate CMI, identify exclusions and allowable deductions, advise whether Chapter 7 or Chapter 13 is more appropriate, and represent you during the process. Use our directory to find a bankruptcy attorney or search for Chapter 7 attorneys and Chapter 13 attorneys in your area.