The Means Test

A bankruptcy “means test” determines if your income is low enough to file Chapter 7 Bankruptcy. It is a formula that keeps filers with larger incomes from filing for Chapter 7 . Filers with higher income who fail the means test may file for Chapter 13 bankruptcy to repay a portion of their debts. The means test deducts specific monthly expenses from your current monthly income to arrive at your monthly disposable income. Your current monthly income is the average income you have earned over the six calendar months before filing for bankruptcy. The higher the disposable income, the more likely you will not be permitted to file for Chapter 7 relief. The first step in the means test is to determine if your income is more or less than the median income in your state. If your earnings are more than the median, next you have to figure out if there is enough money left over, after subtracting certain allowable expenses, to repay some of the debt you owe. If your income is less than the median income for a household of the same size in your state, you pass the means test and do not have to go any further. You are permitted to file a petition for Chapter 7. If your income exceeds the state median, the means test analysis gets more complex. You would next determine if there is enough income left over “disposable income”, after paying the “allowed” monthly expenses, to pay a portion of your unsecured debts (such as medical bills or credit card bills). If your disposable income is more than a certain amount, you fail the means test and cannot file for Chapter 7. Median income levels vary by household size, and state. Every county has different allowed amounts for expenses such as basic necessities, housing, and transportation.

Is bankruptcy right for you? Read the advantages and disadvantages of bankruptcy here.

View the U.S. Department of Justice website to view information containing the median income for family size listed by state.

Find out more about the Means Test from the United States Department of Justice