Chapter 7 Means Test: What You Need To Know

Written By: Attorney Robert Stiberman | Chapter 7 Bankruptcy Updated April 18, 2023

If you are considering filing for consumer bankruptcy, you may want to file for chapter 7 bankruptcy to get out from under your debts more easily and quickly while avoiding a long repayment plan. However, not everyone will pass the Chapter 7 bankruptcy means test that looks at your monthly income and other factors to determine eligibility. Robert Stiberman, a bankruptcy attorney in Florida is breaking down what the means test is and how to determine if you are eligible.

What Is Chapter 7 Bankruptcy?

Before we dive into the means test, let’s look at exactly what Chapter 7 is and what it can mean for you you. Chapter 7 bankruptcy allows you to liquidate much of your consumer debt. The bankruptcy court assigns a trustee who will gather your non-exempt valuables, such as non-retirement-related stocks, secondary vehicles, and savings accounts. Then they will sell any non-cash items and use the proceeds to pay off creditors in a debt settlement.

Much of the non-secured debt leftover, like credit card debt, medical bills, and personal loans, are discharged, so you are completely free from having to pay on them any longer or have your wages garnished to pay for them. It’s important to note that most student loans, business debt, and domestic debt, like alimony and child support, can not be discharged during Chapter 7 bankruptcy.

In order to file for this, you must prove, through a means test, that you do not have enough disposable income to pay off your consumer debt.

What Is the Chapter 7 Means Test?

The Chapter 7 bankruptcy means test is simply a determination, using a specific formula, that an individual does not have the means, or disposable income, to pay off their debt. The means test was started in 2005 with the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act to prevent people with a sufficient monthly income from not paying their debt. If an individual is found to have a sufficient household income, they can file for Chapter 13 bankruptcy to repay more of what they owe.

How Does the Bankruptcy Means Test Work?

Determining whether you pass the Chapter 7 means test is a multi-step process in which your household income is compared to the median income of your state, then your household expenses are factored in to calculate your disposable income left over. Basically, if your income is less than the state’s median income for your family size, you will automatically pass the means test to file for Chapter 7 bankruptcy. If your household income exceeds the amount, further analysis of your expenses and finding your true disposable income is necessary to determine your eligibility for Chapter 7 bankruptcy.

Chapter 7 Means Test Part One: Determining Your Gross Income

First, you need to determine the relevant time period to look at your average income to begin your means test calculation. Specifically, you’re looking for the previous six months before the month in which you filed. For example, if you filed your case in May of 2022, the bankruptcy court would apply your means test from November 1, 2021, to April 30, 2022. Knowing the specific dates to base your means test calculation is very important, especially if your total monthly income fluctuates.

Next, you’ll need to determine your gross income, which is the entire household income you receive, including your paycheck, child support payments, alimony, or retirement income. It’s important to note that you do not have to include Social Security, including SSI and SSDI for disabled members of your family. Also, veterans and active duty members of the armed forces do not have to include their military income or pension in their current monthly income calculation.

Chapter 7 Means Test Part 2: Comparing Your Income to the State Median Income

Once you have a clear look at your income for the previous six months, you can then start filling out the means test form, though we would recommend having a bankruptcy attorney assist you with your means test calculations to ensure accuracy. You’ll want to use the means test page on the United States Department of Justice’s website to find your state’s median income. Using the drop-down menu, you’ll find a link to the median income based on state and family size using data gathered by the Census Bureau. For example, in Florida, the median income for a family of four is $89,206, as of April 2022.

Chapter 7 Means Test Part 3: Determining Disposable Income

If your income exceeds the state median income for your household size, the next part of the means test states that if you have disposable income to pay a minimum of 25 percent of your unsecured debt over five years, you can’t file for Chapter 7 bankruptcy. The types of expenses include:

• Food
• Clothing
• Health care costs
• Housing
• Utilities
• Transportation
• Payments to secured creditors (mortgage or car)
• Payments to priority creditors (student loans, tax debt, back child support)

You also need to know how much you owe to unsecured debt in order to know if you can pay a minimum of 25 percent over a five-year period.

If your expenses exceed this capability, you will most likely pass the means test to file for Chapter 7 bankruptcy.

Read More: How To Pass The Chapter 7 Means Test

Schedule a Free Consultation with a Bankruptcy Attorney Today

If you are in need of debt relief, Chapter 7 bankruptcy may be the solution you need. Our team of dedicated chapter 7 attorneys can help you determine whether you pass the means test and what the best options are for you moving forward. To schedule a free initial consultation, reach out to us today at 954-807-1562 or fill out the form below to get started.

Written By:

Attorney Robert Stiberman

Robert is an experienced bankruptcy attorney adept at handling Chapter 7, 13, and 11 filings, with more than 15 years of experience in bankruptcy cases. Robert represents clients in both consumer and business bankruptcy ... Read More