You must meet income requirements to qualify for a bankruptcy discharge (debt forgiveness) under Chapter 7. Congress created an “income test” referred to as the Means Test when it made changes to bankruptcy laws in 2005. “Passing” the Means Test indicates that you may be eligible for a bankruptcy discharge under Chapter 7. Let’s discuss how you can “pass” the Means Test to file Chapter 7.

What is the Means Test?

The Means Test is a standard bankruptcy form that you complete and file with the bankruptcy court. The form calculates your average monthly income. That figure is multiplied by 12 to calculate your average annual income. 

The Means Test applies to your entire household. Therefore, even if your spouse is not filing for bankruptcy, you must include his or her income when calculating the Means Test. 

The reason you must use household income for the Means Test is because the test compares your average household income to the average income for a household of the same size in your state. The figures used to calculate average income for your state come from Census Bureau data. In other words, the test determines if your household’s average annual income is higher or lower than households in your state with the same number of people. 

Where Do I Get the Forms for the Chapter 7 Means Test?

You can download the Means Test and instructions for completing the Means Test from the United States Courts website. However, you will also need other information to complete these forms. For example, you need the current Census Bureau data, IRS Data, and Administrative Expenses Multipliers to complete the calculations required by the Means Test. 

This information is available from the United States Trustee’s (UST) office. You can download the information online from the the Department of Justice (DOJ) website. However, keep in mind that the UST periodically updates this information. You must ensure that you are using the most recent data available when you calculate the Means Test. Using outdated information could result in an error in the Means Test calculations. 

Or, you can simply take the bankruptcy means test estimate below:

How Do I Calculate My Current Monthly Income for the Means Test?

The Means Test is used to calculate your current monthly income. Current monthly income (CMI) is income you receive from all sources during the six months before filing for bankruptcy. For example, if you file a Chapter 7 bankruptcy petition on April 7, your CMI would be based on all income received during the preceding six months (October 1 through March 31). Feel free to use the calculator below to estimate your average monthly income.

Remember, you must report household income, so you must include your spouse’s income even if they are not filing for bankruptcy relief. 

Examples of income you must report on the Means Test include, but is not limited to:

• Wages
• Salaries
• Bonuses
• Overtime 
• Net Rental Income
• Commissions
• 1099 Income
• Child Support and Alimony
• Dividends, Interest, and Royalties
• Pensions and Retirement Income
• Net Income from Operating a Business
• Workers’ Compensation Benefits
• Annuity Payments
• Unemployment Compensation

To calculate your current monthly income, add your income from all sources for the six months before filing bankruptcy and divide by six. You need to use gross income before deductions, except in the case of rental income and business income. 

You are not required to include payments received under the Social Security Act (SSDI, SSI, and Social Security retirement) as monthly income on the Means Test. However, you must include this income when you complete other bankruptcy forms, including Schedule I. 

Schedule I is a snapshot of your monthly income. If you have a significant amount of disposable income (income you can pay toward debts), you could be disqualified from filing Chapter 7 even if you pass the Means Test.

If My Income Exceeds the Means Test, Are There Expenses I can Use to Get Below the Means Test?

Your current monthly income (CMI) is multiplied by 12 to calculate your average annual income. Your average annual income is compared to the average income for households of your size in your state. If your annual income is below the state median income, you “pass” the Means Test and should qualify for a bankruptcy discharge under Chapter 7. However, if your annual income is above the state median income, you may need to conduct a second test to identify deductible expenses that may still allow you to qualify for a Chapter 7 filing. Ascend built a Chapter 7 Above Median Means Test Calculator to assist with this determination.

In summary, if your annual income is above the state median income, you “fail” the first part of the Means Test. However, you could still qualify for Chapter 7 if you pass the second portion of the Means Test. The second portion of the Means Test deducts allowable monthly expenses from your CMI to calculate your disposable income. Disposable income is income after expenses that may be used to repay your debts. If your disposable income is below a specific amount, you may qualify to file under Chapter 7.

Deductible Expenses

You may deduct actual amounts for certain expenses on the Means Test. Examples of expenses you may deduct include, but are not limited to:

• Income taxes
• Mandatory employment deductions, such as union dues, retirement plans, and uniforms
• Health and disability insurance premiums
• Term life insurance premiums
• Secured debt payments for your car and home
• Childcare expense
• Alimony and child support payments
• Charitable contributions (limited to a percentage of your income)

You may also deduct expenses for special circumstances. However, note that you may need to provide proof of each expense you claim on the Means Test. In addition, not all living expenses may be deductible.

Deductible normal living expenses include:

• Food
• Housekeeping supplies
• Clothing
• Personal care products and services
• Housing and utility expenses
• Transportation expense
• Out-of-pocket health care expenses
• Other miscellaneous personal expenses

The above expenses are limited and based on the number of people in your household. You must refer to the current national standards for maximum amounts allowed for the above expenses. 

Can I Estimate Whether I Qualify for the Means Test?

There are several Means Test calculators available online that allow you to estimate whether you qualify for Chapter 7. Ascend provides a free Chapter 7 calculator. You can use the calculator to estimate whether you qualify for the Means Test.

Do You Need Help with the Means Test?

The Means Test can be a complicated bankruptcy form to complete. If you are unsure whether you qualify for Chapter 7, you may want to complete our Chapter 7 Bankruptcy Process to learn more about Chapter 7 and whether it is right for you. If you decide to file Chapter 7, we can provide a list of attorneys in your area you can to talk to before filing for bankruptcy.