The Bankruptcy Means Test Explained

When people hear "means test," they often assume it is some kind of gotcha designed to keep them out of bankruptcy. In reality, it is a calculation - and many people who worry they will fail it actually pass without any problem. Understanding how it works takes away the uncertainty and helps you make a realistic plan.

This guide is for informational purposes only and is not legal advice. Consult a licensed bankruptcy attorney or nonprofit credit counselor to apply this information to your specific situation.

What Is the Means Test?

The means test is a two-step calculation used to determine whether you qualify for Chapter 7 bankruptcy. Congress introduced it as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The goal was to redirect higher-income filers - people who could realistically repay some of their debts - toward Chapter 13 repayment plans instead of Chapter 7 discharge.

Before 2005, virtually anyone could file Chapter 7 regardless of income. The means test changed that - but it also created a structured, objective standard. If you pass, you qualify. If you do not pass step one, step two gives you another chance.

The official form is Official Form 122A (for Chapter 7 filers), available from the U.S. Courts website.

Step 1: The Income Test

The first question is simple: how does your income compare to the median income for a household of your size in your state?

How It Works

You calculate your current monthly income (CMI) - the average monthly income you received during the 6 full calendar months before your filing date. You then multiply that by 12 to get an annualized figure.

That annualized figure is compared to the official median annual income for your state and household size, as published by the U.S. Trustee Program.

If your income is at or below the median: You automatically qualify for Chapter 7. You do not need to complete Step 2.

If your income is above the median: You must proceed to Step 2 to see if deductions bring your disposable income below the qualifying threshold.

Why Household Size Matters

The median income thresholds scale with household size. A single person faces a lower threshold than a family of four. Make sure you are using the correct household size - and note that household size for bankruptcy purposes can sometimes include people you financially support, even if they are not related to you.

Step 2: The Expense Calculation

If your income exceeds the state median, you are not automatically disqualified. Step 2 calculates your monthly disposable income - what is left after subtracting a defined set of allowable expenses from your current monthly income.

If your monthly disposable income falls below a threshold set by the bankruptcy code (currently around $128.41 per month, with adjustments), you still qualify for Chapter 7. The exact math involves multiplying monthly disposable income by 60 to get a 5-year projection, then comparing that to your total unsecured debt.

Allowable Expense Categories

Step 2 uses a combination of IRS national and local standards and your actual expenses for certain categories:

IRS National Standards (fixed amounts, regardless of what you actually spend):

• Food, clothing, and housekeeping supplies
• Personal care products and services
• Miscellaneous

IRS Local Standards (based on your county or region):

• Housing and utilities
• Transportation (ownership costs)

Actual expenses:

• Your actual monthly mortgage or rent payment
• Your actual car loan or lease payment (secured debt)
• Out-of-pocket health care expenses

Other allowed deductions:

• Mandatory payroll deductions (taxes, Social Security, Medicare, mandatory retirement contributions)
• Life insurance
• Court-ordered payments (child support, alimony)
• Education expenses for minor children (within limits)
• Additional food and clothing if you can document the need

If your allowable deductions are large enough, even an above-median income can still result in qualification for Chapter 7.

What Income Counts?

This is where people often make mistakes. The means test casts a wide net for "income."

What Is Included

• Wages, salary, tips, bonuses, overtime
• Self-employment income (gross, before business expenses - though you can deduct ordinary and necessary business expenses separately)
• Rental income
• Interest and dividends
• Pension and retirement income
• Regular contributions from others toward your household expenses (for example, if a family member regularly pays your rent, that counts)
• Your spouse's income - even if your spouse is not filing with you (see below)

The Spouse Income Rule

This surprises many people. Even if you are filing individually - not jointly with your spouse - your spouse's income is included in the means test calculation. There is an exception: you can exclude the portion of your spouse's income that is not used for household expenses (for instance, if they have separate debts or expenses that their income goes entirely toward).

This is one of the more nuanced parts of the means test. If you are married but filing alone, get professional guidance on how to handle the spousal income calculation.

What Is NOT Included

Not everything counts as income for means test purposes:

• Social Security benefits - explicitly excluded by the bankruptcy code (both retirement and disability)
• Payments to victims of war crimes or terrorism
• Payments to victims of crimes against humanity

The Social Security exclusion is significant - many retirees and disabled individuals on fixed incomes have no means test problem at all.

What Expenses Are Allowed?

The expense side of the means test is where legitimate deductions can make the difference between qualifying and not qualifying for Chapter 7.

IRS Standards Are Set, Not Negotiable in Step 2

For the national and local standard categories, the IRS sets specific monthly dollar amounts. You use those amounts even if your actual spending is lower or higher. For example, if the IRS standard for food and clothing for a family of three in your area is $1,200/month, you claim $1,200 - whether you actually spend $900 or $1,400.

This can work in your favor if you live frugally below the standard amounts.

Actual Expenses Where It Matters

For housing (mortgage/rent) and car payments, the actual amounts you pay are used. If you have a large mortgage on a home you are keeping, or a car payment for a vehicle essential to your work, those real numbers go into the calculation.

Special Circumstances

The bankruptcy code allows for a "special circumstances" exception that can reduce your disposable income beyond the standard deductions. Examples might include:

• Ongoing medical treatment with high out-of-pocket costs not covered by the standard health care deduction
• A one-time income spike (like severance pay or a bonus) that inflated your 6-month average but does not represent your ongoing income
• Unusual and necessary expenses specific to your situation

Special circumstances require documentation and usually require an attorney to present effectively.

What If You Fail the Means Test?

Failing the means test for Chapter 7 does not mean you are out of options.

Option 1: File Chapter 13 Instead

The most common alternative is Chapter 13 bankruptcy, which has no means test. If your income is above the Chapter 7 threshold, you may still qualify for Chapter 13 - a 3 to 5 year repayment plan that restructures your debt. Chapter 13 has its own eligibility rules (regular income, debt limits) but income level alone is not a disqualifier.

Option 2: Claim Special Circumstances

If there are documented reasons your 6-month income average overstates your actual financial situation, your attorney can argue for special circumstances adjustments. This is not a loophole - it requires real documentation - but it can be effective in genuine cases.

Option 3: Wait and Refile

Because the means test looks at the 6 months before filing, timing matters. If you recently lost a job or took a pay cut, waiting a few months until your income average comes down could allow you to pass. A bankruptcy attorney can help you calculate the optimal filing date.

Option 4: Explore Non-Bankruptcy Alternatives

If none of the above apply, there are debt relief options outside of bankruptcy:

• Debt management plans through nonprofit credit counselors
• Debt settlement (with significant caveats about credit impact and tax consequences)
• Negotiating directly with creditors for hardship plans

State-by-State Median Income

The median income thresholds that determine whether you pass Step 1 of the means test are updated periodically by the U.S. Trustee Program - typically every 6 months. The figures are based on U.S. Census Bureau data.

Because these numbers change and vary significantly by state and household size, this guide does not include specific dollar amounts. For current, accurate figures:

• Visit the U.S. Trustee Program website (justice.gov/ust)
• Use the means test calculator tools available on many legal aid websites
• Ask a bankruptcy attorney - they work with these figures constantly

Our state bankruptcy pages also include the current median income thresholds for each state.

Common Means Test Mistakes

These errors can cause problems in your case - sometimes serious ones.

Forgetting Spouse Income

As noted above, if you are married and filing individually, your spouse's income typically must be included. Omitting it is one of the most common errors in pro se (self-filed) cases.

Using the Wrong 6-Month Period

The income calculation uses the 6 full calendar months immediately before your filing date - not the current month. If you file on March 15th, you use September through February. Getting this window wrong can change your result significantly.

Forgetting Non-Wage Income Sources

Rental income, freelance payments, interest income, and regular help from family members all count. People focused on their paycheck sometimes forget to include these.

Missing Legitimate Deductions

On the expense side, people sometimes miss allowed deductions - especially for out-of-pocket health care, mandatory retirement contributions, or education expenses for children. Every legitimate deduction helps.

Using Outdated Median Income Figures

The thresholds change. Using a figure from a year ago - even from a reputable source - could lead you to the wrong conclusion about your eligibility.

Getting the Calculation Right

The means test is a mechanical calculation, but it requires accurate inputs and an understanding of which rules apply to your specific situation. Many people are surprised to discover they qualify despite having above-average incomes, because their allowable deductions bring disposable income below the threshold.

The stakes are high enough that working with a bankruptcy attorney - even just for a consultation to run the numbers - is worthwhile. Many attorneys offer free initial consultations and can tell you quickly whether you are likely to pass.

This article is for general educational purposes only and does not constitute legal or financial advice. Consult a licensed bankruptcy attorney for guidance specific to your situation.