Chapter 7 Means Test Calculator: How to Qualify for Bankruptcy

If you’re thinking about filing Chapter 7 bankruptcy, you need to pass the means test first. The test determines whether you qualify based on your income and expenses. If you can afford to repay some debts, the law won’t let you discharge them through Chapter 7. But if your income is low enough or your necessary expenses are high, you may still qualify.

The test has two main parts. First, you’ll compare your income to your state’s median income. If your income is below the limit, you pass automatically. If it’s above, you’ll move to a second part that examines your expenses closely.

What Is the Chapter 7 Means Test?

The Chapter 7 means test determines if you qualify to file for Chapter 7 bankruptcy. It analyzes your income and living expenses to see if you can afford debt repayment.

If the test shows you don’t have enough income left after covering necessary expenses, you can erase your debts through Chapter 7. The test checks whether you have the means to pay your creditors.

How Does the Chapter 7 Means Test Work?

Here’s the means test process broken down:

1. Gather your income info. Add up all income you and your spouse received in the past six full months before filing.

2. Find your state’s median income. Look up the current median income for your household size on the U.S. Trustee’s website.

3. Compare your income to the median. If your income is below the median, you pass. If it’s above, move to Step 4.

4. List allowed monthly expenses. Use IRS guidelines and actual costs for housing, food, and car payments.

5. Calculate your disposable income. Subtract your allowed expenses from your income to see what’s left.

6. Check if you qualify. If your leftover income can’t repay a meaningful portion of debts, you may still qualify.

Want to know if you qualify for bankruptcy relief? Speak with a bankruptcy attorney for free to review your situation.

How to Compare Your Income to the Median

The first part of the means test checks if your income automatically qualifies you for Chapter 7.

You need to calculate your gross income before taxes or deductions. But the test doesn’t use your most recent paycheck. It uses income from the past six full months, not counting the month you file.

For example, if you file in June, you’ll use income from December 1 through May 31.

Timing matters, especially if your income varies or you receive bonuses. A large one-time payment could disqualify you if it falls within your six-month window. Some people wait a few months so that income won’t count.

What Income Sources Count on the Means Test?

Here are common income sources you must include:

• Wages or salary before taxes or deductions

• Alimony

• Child support, whether court-ordered or not

• Regular financial help from partners, parents, or roommates

• Business or self-employment income, including rental properties

• Unemployment benefits

• Retirement income or pension payments

• Social Security retirement income

Some types of income you don’t have to include:

• SSI (Supplemental Security Income)

• SSDI (Social Security Disability Insurance)

• Certain military-related benefits under the HAVEN Act

How to Find Your State’s Median Income

Now that you’ve totaled your income, compare it to your state’s median income. These numbers are based on U.S. Census Bureau data and update several times yearly.

You can find current numbers on the Office of the U.S. Trustee website. Don’t rely on a Google search. The median income changes regularly, and only the UST website has official data.

Look for the section titled “Median Family Income Based on State/Territory and Family Size.”

Part 2: Account for Expenses if Necessary

If your income exceeds the median, the second part examines your expenses. The test calculates your disposable income after covering allowed monthly expenses.

If you don’t have enough disposable income to repay at least 25% of certain debts over five years, you may still qualify for Chapter 7.

What Expenses Can You Deduct in Part 2?

Allowed expenses fall into four categories:

• Expenses based on national IRS standards

• Payments to secured and priority creditors

• Actual reasonable and necessary expenses

• Administrative expenses

Expenses Based on National IRS Standards

You deduct the IRS standard amount for each category, not your actual expenses. These categories include:

• Food, clothing, and other items

• Out-of-pocket health care expenses

• Housing and utilities

• Transportation

Payments to Secured and Priority Creditors

If you’re keeping property securing a debt, you can deduct the payment. The most common examples are mortgage and car loan payments.

Expenses related to priority debts like taxes that won’t be discharged can also be deducted.

Actual Expenses

You can increase some expense deductions if you prove your actual, reasonable, necessary expenses exceed IRS local standards.

Certain actual expenses, including court-ordered domestic support obligations, are considered in this analysis. But this doesn’t include payments subject to garnishment orders that stop once bankruptcy is filed.

Administrative Expenses

The test determines how much creditors would receive if you filed Chapter 13 instead of Chapter 7. The means test accounts for administrative expenses that would be part of Chapter 13.

These expenses reduce the amount going to unsecured creditors in a Chapter 13 case. If there’s not enough money left to pay at least 25% of unsecured debts over five years, you’re eligible for Chapter 7.

What Happens if You Don’t Pass the Means Test?

If you don’t pass the means test, you won’t be eligible for Chapter 7. But that’s not your only bankruptcy option.

You can file Chapter 13 bankruptcy instead. In Chapter 13, you repay a portion of unsecured debts like credit cards and medical bills over 3-5 years.

You’ll need to prove to the bankruptcy court that you have enough income for required monthly payments. You’ll need to stick to a strict budget during the repayment plan.

You can also speak with a nonprofit credit counselor about other debt relief options. Our partner Cambridge Credit Counseling offers free consultations to explore alternatives.

Why Do We Have the Means Test?

Congress added the means test in 2005 to prevent people from using Chapter 7 if they could afford debt repayment.

The means test is outlined in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). It requires the means test for anyone filing Chapter 7 to deal with consumer debts.

If your income is too high and you don’t qualify based on expenses, the court might presume abuse. That doesn’t mean you’re doing anything wrong. But it does mean you’ll need to show Chapter 7 is still right for you. Otherwise, you may have to file Chapter 13 instead.