What is the 'Means Test' for bankruptcy?

The Means Test is a calculation used to determine whether you qualify for Chapter 7 bankruptcy. It was created by the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act to prevent people with higher incomes from using Chapter 7 to discharge debts when they could afford to repay some of them through Chapter 13.

Step 1: Compare your income to the state median. Add up your household's gross income for the 6 months before your filing date and multiply by 2 to get an annualized figure. If this number is below the median income for a household of your size in your state, you pass the Means Test automatically and can file Chapter 7. For example, the median income for a household of 3 in Texas is roughly $84,000 (these figures are updated periodically by the Census Bureau). If your annualized income is below that, you qualify without further analysis.

Step 2: The detailed calculation (if above median). If your income is above the state median, you move to the second part of the test. This is where it gets complicated. You take your actual monthly income and subtract "allowed expenses" using IRS Collection Financial Standards. Some expenses use your actual numbers (like mortgage or rent). Others use standardized amounts set by the IRS (like food, clothing, and transportation). The goal is to calculate your monthly "disposable income." If your disposable income is too high (roughly above $200 to $250 per month depending on your total debt), you don't qualify for Chapter 7.

What counts as income: Wages, salary, overtime, bonuses, commissions, net business income, rental income, pension and retirement distributions, unemployment benefits, disability benefits (non-SSI), alimony, child support, and investment income. Social Security benefits are excluded.

What doesn't count: Social Security income (completely excluded from the Means Test). One-time payments like insurance settlements or inheritances received outside the 6-month lookback period. Contributions to mandatory retirement plans are deductible.

Special circumstances: Even if you fail the Means Test on paper, you can argue "special circumstances" that justify Chapter 7 filing. Examples include serious medical conditions with ongoing costs not captured in the standard calculation, a sudden job loss that occurred after the 6-month lookback period, or anticipated income reduction that isn't reflected in historical earnings.

Timing matters: Because the Means Test looks at the 6 months before filing, the timing of your bankruptcy filing can affect whether you pass. If you had a high-paying job for 4 of the last 6 months but lost it recently, waiting a few months before filing can bring your 6-month average below the threshold.

A bankruptcy attorney can run the Means Test calculation during a free consultation. The official form is Form 122A-1 (Chapter 7 Statement of Your Current Monthly Income) and Form 122A-2 (Chapter 7 Means Test Calculation).