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How To Pass The Means Test For Chapter 7 Bankruptcy 

One of the most important things to consider before filing Chapter 7 bankruptcy is understanding whether or not you are eligible to file a Chapter 7 bankruptcy in Florida. In order to be eligible to file, you must be able to pass the means test for Chapter 7 bankruptcy. 

This article will discuss in detail how to pass the means test for Chapter 7 bankruptcy, what is the Chapter 7 bankruptcy means test, why the means test was created, common misconceptions about the means test, as well as provide you with tips and expert advice. You will receive step-by-step information on how you can pass the Chapter 7 means test and discharge your eligible debts.

Table of Contents

    What Is the Means Test for Chapter 7 Bankruptcy?

    The bankruptcy means test is an analysis to determine if an individual is eligible to file for Chapter 7 bankruptcy based on their current monthly income. It is called the “means” test because the analysis seeks to determine if someone filing for bankruptcy has the “means” to pay back some or all of their debts.

    If you are filing for bankruptcy and have the “means” to pay back some portion of your debt through a Chapter 13 bankruptcy repayment plan, you will have to demonstrate why you should still be eligible to file for Chapter 7 bankruptcy and rebut the presumption of abuse that arises. 

    Note: The means test only applies to individual debtors and not to a partnership, corporation, or other business entity. This distinction is important because pursuant to 11 U.S.C. section 101(41) and 109(b) the debtor may be an individual, a partnership, a corporation, or other business entity.

    What Does the Chapter 7 Means Test Do?

    The means test was created when Congress passed The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 in a move to reform the personal bankruptcy system.  The Act, commonly referred to as BAPCPA, created the “Means Test” in order to determine if individuals seeking to file for bankruptcy were eligible to file a Chapter 7 bankruptcy.  Non-eligible individuals would be required to file a Chapter 13 bankruptcy instead. 

    Note: If you are not eligible to file for Chapter 7 bankruptcy in Florida, it does not mean that you are automatically eligible to file for Chapter 13 bankruptcy. Although to file for Chapter 13 bankruptcy you do not have to pass the means test, to be eligible for chapter 13 bankruptcy you (i) must have a regular income, (ii) your unsecured debts cannot exceed $466,275, and (iii) your secured debts cannot surpass $1,395,875.

    The means test was created with the goal of preventing the Chapter 7 bankruptcy process from being abused by individuals who can pay a portion of their debts. In essence, the Chapter 7 means test made it more difficult for individuals to file for Chapter 7 bankruptcy as stricter guidelines were set up through the Act. 

    The means test for Chapter 7 determines if there is a presumption of abuse and whether or not you will have any disposable income to pay your creditors.

    You will need to properly prepare and file the Bankruptcy Official Form 122A-1 Statement of Current Monthly Income and if applicable, the Bankruptcy Official Form 122A-2 Means Test Calculation.

    You can find a complete list of official chapter 7 bankruptcy forms here.

    How Does The Means Test Work?

    This section will inform you on how the means test works and what steps you need to take to perform the means test. The means test is divided into two parts. In the first part of the means test analysis, you will compare your household’s annualized current monthly income with the state median income for a family of your size in your state.

    If your income is below the state median, you are done and do not need to proceed to the second part of the means test. In summary, the second and more complicated part of the Means Test is only for individuals who do not pass the first part of the means test. 

    You will need to go through a one or two-step analysis to determine if you pass the bankruptcy means test to be eligible to file a Chapter 7 bankruptcy in Florida. If your household’s annualized current monthly income is below the median income, you most likely won’t have to worry about the second step of the analysis, but we will discuss more on that later. 

    Calculate Your Current Monthly Income

    The first step of the means test is to compare your household’s annualized current monthly income with the state median income for a family of your size in your state. 

    To calculate your household’s income, you must add all of the income you’ve received during the last full/complete 6 months prior to filing bankruptcy and multiply it by 2. For example, if you are filing your case on August 13th, the “look back” period is from February 1st through July 30th. 

    Means Test Sources of Income

    Current monthly income is defined in 11 U.S.C. § 101(10A) as the monthly average of the income received by the individual debtor (and the debtor’s spouse in a joint case) during a defined six-month time period prior to the filing of the bankruptcy case.

    Below you’ll find a list of typical sources of income you will need to include in your income calculation, if applicable:

    • Your gross wages, salary, tips, bonuses, overtime, and commissions (before all payroll deductions)
    • Alimony and maintenance payments.
    • All amounts from any source which are regularly paid for household expenses of you or your dependents, including child support.
    • Net income from operating a business, profession, or farm
    • Net income from rental and other real property 
    • Interest, dividends, and royalties
    • Unemployment compensation
    • Pension or retirement income

    Tip: You do not have to include income received from social security retirement benefits, social security disability benefits, or supplemental social security income.

    How to Calculate Income for Chapter 7 Means Test

    Step 1: Determine the Median Household Income

    As part of completing the first step of the means test, you will need to know what is the median household income for a family of your size in your state. Each state’s median income is published by the Census Bureau, and the data is updated each year.

    You will find the median household income information on the U.S Trustee Program’s website or by clicking here. Below is a chart with the median household income for families in the State of Florida for cases filed on or after May 15th, 2022. 

    State of Florida Median Household Income

    1 earner2 people3 people4 people5 people6 people7 people8 people *
    $55,681$69,884$75,057$89,206$99,106$109,006$118,906$128,806
    * Add $9,900 for each individual in excess of 4.

    Means Test Results

    #1 If your household’s annualized current monthly income is less than or equal to the median household for a household of your size in your state, then there is no presumption of abuse and you have passed the Means Test without having to do anything further.

    #2 If your household’s annualized current monthly income is more than the median household for a household of your size in your state, then there is a presumption of abuse and you will need to move on to step two- the Means Test Calculation- to determine if you can overcome the presumption of abuse. 

    A presumption of abuse does not mean you are actually trying to abuse the bankruptcy system. Rather, the presumption simply means that you are presumed to have enough income that you should not be eligible to file for Chapter 7 bankruptcy. 

    Step Two: The Means Test Calculation 

    If your income is more than the median income for a family of your size in your state, you will need to undertake step two of the means test calculation and complete the Bankruptcy Official Form 122A-2 Means Test Calculation. The goal of this calculation is to determine what is your “disposable income” over a five-year period. 

    If after completing the Means Test Calculation, your disposable monthly income is determined to be $137 or less, then there is no presumption of abuse and you may file your Chapter 7 bankruptcy even when your income is higher than the median income. If your disposable income is higher, there is still a presumption of abuse and you will not be eligible to file for Chapter 7 bankruptcy in Florida. 

    How is Disposable Income Determined?

    To determine your disposable income, the Means Test Calculation requires you to deduct only certain allowable expenses from your household’s current monthly income. The Internal Revenue Service (IRS) issues National and Local Standards for certain expense amounts that will be deducted from your income based on your household size.

    The standard expense information can be found by clicking here. The standards are derived from the Bureau of Labor Statistics Consumer Expenditure Survey. These standard expenses include:

    National Standards 

    • Food expenses
    • Housekeeping supplies expenses
    • Apparel and services
    • Personal care products and services
    • Miscellaneous expenses 
    • Out-of-pocket healthcare expenses

    Local Standards 

    • Housing and utility expenses
    • Transportation costs expenses

    Note: Even if your actual expenses for these categories are higher than the National or Local standard, you cannot deduct the actual expense from your income. 

    Expenses Allowed in the Means Test Calculation 

    You will be allowed to deduct some of your actual expense amounts for certain types of expenses such as:

    1. Mortgage Payments
    2. Car Loan Payments
    3. Taxes
    4. Involuntary deductions from Payroll that your job requires, such as retirement contributions, union dues, and uniform costs.
    5. Health Insurance
    6. Life insurance
    7. Court-ordered payments such as spousal or child support
    8. Childcare such as babysitting, daycare, nursery, and preschool. This only applies to small children that are not in Elementary or secondary school.
    9. Charitable Contributions

    Expense Results

    #1 If after deducting all of the applicable national and local standard deductions and the certain allowable actual expenses from your income, your disposable monthly income is determined to be $137 or less, then there is no presumption of abuse, you have passed the Means Test and you may file your Chapter 7 bankruptcy. Passing the means test is imperative to filing your Chapter 7 bankruptcy. 

    #2 If after deducting all of the applicable national and local standard deductions and the certain allowable actual expenses from your income, your disposable monthly income is determined to be more than $137, then you have not overcome the presumption of abuse and you will not be eligible to file for Chapter 7 bankruptcy. You will be required to file a Chapter 13 bankruptcy and pay your creditor your disposable income over a five-year plan. 

    The experienced bankruptcy attorneys at Stiberman Law can advise you as to whether or not you can pass the means test. If your bankruptcy attorney determines that you are eligible to file for Chapter 7 bankruptcy in Florida, we will provide you with professional representation to ensure the best possible outcome of your case.

    Misconceptions about the Means Test 

    Add Up Your Credit Card Debt

    You do not need to add your credit card in connection with the means test. Although adding up your credit card is a good idea to understand your liabilities, it is not related to the means test calculation.

    Compare Your Total Debt To Your Monthly Income

    Although this may be a good idea for budgeting purposes and financial planning, you do not need to compare your total debt to your monthly income to perform the means test calculations.

    Another misconception is that if your total debt is less than your monthly income or if your total debt is more than your monthly income you will fail the means test. This is not true, the means test looks at your income to determine whether or not you will have enough disposable income to repay your creditors in a Chapter 13 bankruptcy case. 

    Exceptions to the Means Test

    There are some circumstances where an individual trying to file for Chapter 7 bankruptcy will not be required to complete the means test.

    Here are some exceptions:

    • Individuals whose debts are primarily business debts (more than 50% of the total debt)
    • Disabled veterans whose debts were incurred while on active duty or performing a homeland defense activity. must have at least a 30% disability rating. See Section 707(b)(2)(D) of the Bankruptcy Code

    If you are seeking an exception to the means test you will need to prepare and file an Official Form 122A-1Supp Statement of Exemption from Presumption of Abuse Under §707(b)(2).

    Talk To A Bankruptcy Attorney

    If you are considering filing for Chapter 7 bankruptcy in Florida, it is imperative that you understand how to pass the means test for Chapter 7. At Stiberman Law, we can guide you through the sometimes confusing means of test calculations, help you determine if you qualify, and represent you in filing Chapter 7 bankruptcy. We will also work with you to help you understand the next steps and which bankruptcy exemptions you are eligible to file.

    For more information or to schedule a consultation, please call 954-758-4324 or fill out the form below.   

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