The Bankruptcy Means Test: Are You Eligible for Chapter 7 Bankruptcy?

You'll find out whether you can qualify for Chapter 7 bankruptcy by taking the bankruptcy "means test." The Chapter 7 means test calculation determines whether your income is low enough to file for Chapter 7 bankruptcy. If you fail the means test, you won't be able to use Chapter 7 bankruptcy to wipe out debts. Instead, you might qualify to repay a portion of what you owe in Chapter 13 bankruptcy through a three- to five-year Chapter 13 repayment plan.

However, Chapter 7 bankruptcy isn't only for low-income filers. You can earn a significant monthly income and qualify for Chapter 7 bankruptcy if you have a large family or considerable but reasonable monthly costs, such as a high mortgage and car loan payments, taxes, and other expenses.

Read on to learn how the Chapter 7 means test works, how to calculate your income for the Chapter 7 means test, and whether you can pass the means test and file for Chapter 7 bankruptcy.

How Does the Chapter 7 Means Test Work?

The means test limits the use of Chapter 7 bankruptcy to those who can't pay their debts by testing whether they have enough income to repay creditors. Those without enough will pass and can proceed with Chapter 7.

You'll start by determining if your "current monthly income" exceeds your state's median income for your family's size. "Current monthly income" is your gross income earned over the six calendar months before filing for bankruptcy multiplied by two.

If your gross income is less than your state's median family income, you'll pass the means test and won't need to do anything further. However, you won't automatically fail the means test if you make more than the median. If your income is too high to pass the income portion of the Chapter 7 means test, you'll get a second opportunity to qualify.

The next step involves deducting allowed monthly expenses from your current income to arrive at your monthly "disposable income." The higher your disposable income, the less likely Chapter 7 bankruptcy will be an option. Instead, your bankruptcy option will be paying your disposable income to creditors through a Chapter 13 repayment plan, assuming you qualify.

Learn more about calculating your current monthly income for bankruptcy purposes.

Is Your Means Test Income More Than the Median?

The first step is simple: If your current monthly income is less than the median for a household of your size in your state, you pass. You're done and don't need to complete the rest of the means test. You can file for Chapter 7.

Median income levels vary by state and household size, so check the appropriate chart on the U.S. Trustee Program website.

Do You Have Enough Disposable Income to Repay Some Debts?

If your household income exceeds the state median, the means test computations will be more complicated. You must determine whether you have enough income after paying your allowed monthly expenses or "disposable income" to pay off at least a portion of your unsecured debts, such as credit card bills.

However, don't expect to deduct your exact expense amounts. Different counties and metropolitan regions limit how much you can subtract for expenses like necessities, housing, and transportation.

You'll know your disposable income once you complete the means test calculation. If it's too high, you'll fail the means test and won't be able to discharge qualifying debts by filing for Chapter 7 bankruptcy. If it's too low, you'll pass the means test and can file for Chapter 7.

Learn more in-depth information about Chapter 7 Bankruptcy eligibility.

Using the Chapter 7 Means Test Forms

If you're looking for a way to determine eligibility under the Chapter 7 means test, try filling out the means test forms. Fillable, downloadable forms are available online on the U.S. Bankruptcy Court's website.

Follow the user-friendly instructions. Here's where you'll start:

• Form 122A-1. The first means test form, Chapter 7 Statement of Your Current Monthly Income (Form 122A-1), determines whether your income is below your state's median income. If it is, you qualify for a Chapter 7 bankruptcy and don't need to complete the other two forms.
• Form 122A-2. If your income is above the state median, you still might qualify. You'll find out by completing the Chapter 7 Means Test Calculation (Form 122A-2). On this form, you'll deduct allowed expenses and determine whether you have sufficient disposable income to pay into a Chapter 13 bankruptcy plan.
• Form 122A-1Supp. Some people—such as certain military members—don't have to take the means test at all. You'll fill out the Statement of Exemption from Presumption of Abuse Under § 707(b)(2) (Form 122A-1Supp) to determine whether you're exempt from the means test.

Bankruptcy issues often require more in-depth information than you can find in one article. If you need help filling out the bankruptcy forms, it's a good idea to use a self-help book like How to File for Chapter 7 Bankruptcy by Attorney Cara O'Neill or seek the advice of a knowledgeable bankruptcy attorney. Most offer a free initial consultation.

If You Pass the Chapter 7 Means Test

You should know that passing the means test doesn't automatically qualify you to file for Chapter 7 bankruptcy. Another step exists. The court will look at two additional forms: Schedule I: Your Income and Schedule J: Your Expenses. If these two forms show you have enough remaining to pay something to your creditors, the court might convert (switch) your Chapter 7 case to a Chapter 13 bankruptcy.

Also, just because you qualify under the means test doesn't necessarily mean you should file for Chapter 7 bankruptcy—only that you can. You'll want to consider many other factors not discussed in this article. For help, try The New Bankruptcy: Will It Work for You? By Attorney Cara O'Neill.

If You Don't Pass the Chapter 7 Means Test

Consider using Chapter 13 bankruptcy. It requires you to make monthly payments over three to five years according to a strict budget monitored by the court. Although most people who file for bankruptcy prefer Chapter 7, Chapter 13 bankruptcy is still the best way to handle specific problems, like catching up on a mortgage payment so you don't lose your house or repaying debts that won't go away in bankruptcy over time, such as most taxes and support arrearages. Learn more about when Chapter 13 is better than Chapter 7 bankruptcy.

But before you settle on Chapter 13 bankruptcy, be sure to talk to a lawyer. With expert legal advice, you might find that you can pass the means test after all.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we wholeheartedly encourage research and learning. You can find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. For instance, Nolo articles will explain what bankruptcy can do, what you'll want to avoid before filing for bankruptcy, and more. Information needed to complete the official downloadable bankruptcy forms is on the Department of Justice U.S. Trustee Program website.

However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.