If you want to file for Chapter 7 bankruptcy, you must pass the means test. The means test looks at your income, and in some cases, your expenses and debts, to determine if you can afford to pay back some of your debts. If so, you might not be allowed to use Chapter 7. Instead, you could use Chapter 13 to file for bankruptcy.
Once you've learned about the Chapter 7 means test, check out the resources provided at the end of the article. You'll find links to applicable bankruptcy forms and additional articles we think you'll enjoy.
The main goal of the means test is to discover higher-earning debtors who can pay back some or all of their debt in Chapter 13 rather than allowing them to discharge their debt in Chapter 7. Although Chapter 7 filers might lose any property they can't "exempt" or protect, filers don't directly repay any debt. Unless they own valuable nonexempt property they really want to keep, most filers who have a choice between Chapters 7 and 13 opt for Chapter 7.
The first part of the means test compares your current monthly income to the median income in your state for a household of your size. The median income is a statistic similar to an average. (You can find links to each state's median, and other state-specific bankruptcy resources, by selecting your state from the list on our Bankruptcy in Your State page--although you should verify the accuracy of the figures because they regularly change.) If your income is less than the median, you qualify to file Chapter 7; if not, you must do some more calculations to figure out you still might be eligible.
Learn more about what constitutes current monthly income for the bankruptcy means test.
If your income exceeds the state median, the means test becomes more complicated. You must figure out whether you would have enough disposable income left, after subtracting allowed expenses, to pay off some of your unsecured debts (credit card bills, medical debt, and so on).
If your disposable income is equal to or more than a minimum amount set by law, you will not qualify for Chapter 7 unless you have special circumstances. If you want to file for bankruptcy, you could use Chapter 13 instead. And, because your income exceeds the state median, you will have to use a five-year repayment plan (those whose income is less than the state median can repay debts over as few as three years if they choose to use Chapter 13).
If your income is less than the state median, the means test is relatively straightforward. For those with higher incomes, however, the means test is quite complex. Not only will you have to do pages of calculations, but you'll have to find the correct income and expense figures for your area and household size.
To find the figures, you'll start by going to the U.S. Court's means testing page. In the box entitled "Data Required for Completing the 122A Forms and the 122C Forms," select the most recent time period and click "Go." It will take you to a page with links to your state's median income, as well as the state and national standards for food, housing, and other expenses. For example, to find a state-by-state median income chart, click on "Median Family Income Based on State/Territory and Family Size."
Under certain limited circumstances, you can avoid having to take the means test at all. If you do take it, pay particular attention to the expenses that can vary, like child care costs. Debtors overlook expenses or fail to accurately account for them all the time. They can leave hundreds of dollars on the table by failing to document all their expenses.
Here are five circumstances that might help you pass the means test or avoid taking it.
You're a disabled veteran and incurred debts while on active duty or while performing a homeland defense activity.
You're a reservist or member of the National Guard called to active duty/homeland defense.
Your debts are primarily not consumer debts. Consumer debts are those associated with your personal needs or your household. The most common non-consumer debts are business debts, but other debts can qualify, too, like income taxes.
You have "special circumstances" that would make it unfair for you to be held to the strict standards of the means test. The statute lists two: a call to active duty and serious medical issues. The courts have considered other special circumstances like increased expenses due to natural disasters or taking in orphaned nieces and nephews.
You have little disposable income. Be sure to accurately list your income and all of your expenses. Ensure that expenses like long-term care insurance and union dues are accurately characterized. Don't overlook payments on title loans, overdue taxes, child care, healthcare expenses, unreimbursed employment expenses, education for employment of a disabled child, and charitable contributions. Properly documented, these expenses can help you pass the means test by showing how little disposable income you really have.
Learn more about how expenses are documented in What Expenses Can Help You Pass the Bankruptcy Means Test?
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.