How To Pass the Chapter 7 Means Test and Qualify for Bankruptcy

To qualify for Chapter 7 bankruptcy, you need to pass a means test. The test compares your income with your state’s median income for similar households. If your income is lower, you pass. If it’s higher, the test looks at your expenses and disposable income.

Many people do qualify, especially if their income falls below their state’s median. You can move forward with confidence once you understand the process.

How Do You Pass the Chapter 7 Means Test?

The means test is one of your first steps when considering Chapter 7 bankruptcy. You need to make sure you qualify before moving forward.

Many people pass, especially if their income is lower than their state’s median. If your income is higher, you may still qualify after subtracting certain living expenses.

We’ll break down each part of the means test. You’ll learn how it works and what forms you’ll need.

What Is the Chapter 7 Means Test?

The means test determines whether you qualify for Chapter 7 bankruptcy. You compare your income with your state’s income limits. If your income is less than the median income in your state for your household size, you pass.

If it’s more, you’ll take further steps in the means test. The next steps help determine if you’re eligible for Chapter 7.

What Are the Chapter 7 Means Test Forms?

The court needs to check if you qualify before you can file. That’s where the means test comes in.

You may need to fill out up to three official bankruptcy forms:

• Statement of Your Current Monthly Income
• Means Test Calculation
• Statement of Exemption from Presumption of Abuse

Most people only need to fill out the first form. If your income is below the limit for your state and household size, you pass. You can move forward with Chapter 7.

If your income is above the limit, you’ll need to fill out the second form. The second form shows your expenses. Many people still qualify at this stage. You qualify if you don’t have money left over after paying basic living costs.

Having little or no disposable income can still make you eligible. If you don’t pass the means test, you can consider filing Chapter 13 instead. Speak with a bankruptcy attorney for free to explore your options.

How Do I Fill Out the Statement of Current Monthly Income?

The first form calculates your current monthly income. It determines how your income compares to your state’s median income limit.

There are many questions, but they break down into three steps.

Step 1: Calculate Your Monthly Income

Question 1 asks about your marital status. To complete questions 2–11, you’ll need to calculate your six-month average gross income.

Gross income is your income before taxes, Social Security, or other expenses are taken out. To calculate your six-month average gross income, add up your wages, salaries, and tips for the past six months.

Then divide that number by six. You get your average monthly income. If you receive any income from sources other than employment, factor that in as well.

Other income may include child support, rental income, unemployment benefits, or money from side gigs.

Step 2: Calculate Your Annual Income

Next, you need to calculate your annual income to answer question 12. Take your current monthly income amount from question 11 and multiply it by 12.

The result is your annual income.

Step 3: Compare Your Income to Families of Your Household Size in Your State

Question 13 requires you to find the annual income of a family of your household size in your state. Question 14 has you compare your annual income from question 12 to the amount in question 13.

You’ll see if your income is more or less than the median income.

• If your income is less, you’ve met the means test requirements. You can file for Chapter 7 bankruptcy. You do not need to fill out any additional means testing forms.
• If your income is more than the limit listed for your household size, you’ll need to complete the Means Test Calculation form.

How Do I Fill Out the Means Test Calculation Form?

The Means Test Calculation form figures out if you have disposable income. Disposable income is money left over at the end of the month after covering basic living expenses.

To qualify for Chapter 7 at this stage, your disposable income needs to be zero or close to it. If you show a higher amount of disposable income, you might not be eligible.

Some people in this situation explore Chapter 13 instead. Chapter 13 lets you repay part of your debt over time.

The form has four main parts:

• A calculation of your adjusted income
• A breakdown of your monthly expenses (some are based on IRS guidelines; others are your actual costs)
• A review to see if your case raises concerns about abuse of the bankruptcy process
• A place to explain any special circumstances that may affect your ability to pay

Each section helps the court understand your financial situation. The court determines whether Chapter 7 is the right fit.

Step 1: Determine Your Adjusted Income

You start by using your income information from the Statement of Your Current Monthly Income form. Follow the directions on the form to make the adjustments needed.

You’ll get your adjusted income amount.

Step 2: Outline Your Expenses

Outline your expenses for the six months before filing for bankruptcy. You’ll get an average. Expenses, also referred to as deductions, include both your taxes and Social Security deductions.

Living expenses are also included. The IRS’s allowable living expenses detail what limits are placed on certain living expenses.

The limits ensure a reasonable standard of living. Additional living expenses may also be included if justified to the trustee. Examples include a larger mortgage or car payment, dependent care, healthcare, court-ordered payments, and involuntary employment deductions.

Step 3: Subtract the Average of Taxes, Social Security, and Living Expenses

Once you’ve outlined all your expenses, add up the exact amounts you spent for the last six months. Divide this number by six to find your average monthly living expenses.

Next, take your current monthly average income and subtract your average living expenses. Your income minus your expenses equals your disposable monthly income.

Step 4: Calculate Disposable Income Limits

If you have a negative disposable income, you can stop here. You have met the means test and can file for Chapter 7.

Negative disposable income means you don’t have money left over at the end of the month. You can’t pay down your debt. That means there’s no presumption of abuse.

If your disposable income is positive, you may still file Chapter 7. Having disposable income could lead to a presumption of abuse. In this case, you’d need to prove there are special circumstances.

You could also convert your case to Chapter 13. Getting legal help can be especially beneficial at this stage. Speak with a bankruptcy attorney for free to understand your options.

Is Anyone Exempt From the Means Test?

In some rare cases, you might skip the means test even if your income is above the state limit. You’d qualify for a means test exemption.

If you qualify, you’ll need to fill out the Statement of Exemption from Presumption of Abuse. The form goes along with the Statement of Your Current Monthly Income.

If you’re exempt, you don’t have to complete the full Means Test Calculation form.

There are two main reasons someone might qualify for a means test exemption:

1. Your debts are mostly business debts. If the majority of your debts are related to a business or self-employment, you’re likely exempt from the means test. The debts must not be for personal or household use.
2. You qualify under a military service provision. You may be exempt if:
   • You’re a disabled veteran and took on the debt while on active duty or during a homeland defense activity, or
   • You’re a member of the National Guard or a reservist who was called to active duty or homeland defense.

If either of these applies to you, check the right boxes on the exemption form. Sign it and file it with your other bankruptcy paperwork. Many people in these situations still benefit from speaking with a bankruptcy attorney.

Understanding Your Chapter 7 Qualification

The Chapter 7 means test helps decide if you qualify for Chapter 7 bankruptcy. First, you compare your income to the median income for your state and household size.

If it’s lower, you pass the test. If your income is higher, the next step looks at your expenses. The test determines if you have any disposable income left over.

If you do, you may need to file Chapter 13 instead. Chapter 13 involves a repayment plan. The forms can feel overwhelming, but don’t let that stop you from getting a fresh start.