When you are filing for Chapter 7 bankruptcy, one of the first things you’ll need to check is whether the bankruptcy means test applies to your case. This test isn’t based on how much you owe, but it’s about your income, how many people live in your household, and what you’re allowed to spend each month on basic living costs.
The court uses this calculation to decide whether you’re eligible for Chapter 7 or whether you may need to file under Chapter 13 instead. In some cases, the test can be skipped. In others, it’s mandatory and decisive.
Knowing how the means test works can help you prepare before you move forward with a bankruptcy case.
Understanding the Purpose of the Bankruptcy Means Test
The bankruptcy means test was introduced to help the court determine if someone truly qualifies for Chapter 7 based on their financial situation. It’s not just about how much debt you have—it looks closely at your income and necessary living expenses. In most consumer bankruptcy cases, this calculation is a required part of the process. Learn more about filing bankruptcy in Pennsylvania.
Before this requirement existed, the decision to file under Chapter 7 was often left to the filer and their attorney. Since 2005, however, the Bankruptcy Code requires a standardized test.
The idea is simple: if your income is too high, and your remaining income after basic expenses is more than a set threshold, you may not be eligible for Chapter 7.
Bankruptcy Means Test Formula (simplified)
If:
(Average Monthly Income – IRS Allowed Expenses) < Threshold
→ Then: Eligible for Chapter 7
Otherwise:
→ Presumption of abuse arises; must rebut or file under Chapter 13.
The Chapter 7 means test is not meant to complicate the process. The purpose of the means test is to help the court decide whether someone should be allowed to erase their debts completely under Chapter 7 or whether a repayment plan under Chapter 13 would be more appropriate. To compare both types, see the difference between Chapter 7 and Chapter 13 bankruptcy.
Who Needs to Take the Means Test?
Whether you need to complete the means test depends mostly on the kind of debt you have. If your debts are mainly personal—like credit cards or medical bills—you’ll likely need to go through the test. But some exceptions apply.
If your financial obligations stem primarily from business debts, you may not have to complete the test. The law draws a line between consumer debt—like credit cards and medical bills—and debt tied to commercial activity. Another exemption applies to disabled veterans whose debts were incurred during active duty. In these situations, the law allows you to bypass the calculation altogether.
For those who don’t meet one of these exceptions, the means test is mandatory. It evaluates your income over the past six months and compares it to your state’s median for a household of your size. That first number determines whether you’ll need to complete the full analysis.
Understanding these rules is essential. They decide who qualifies for Chapter 7 and who may need to consider other options.
How the Bankruptcy Means Test Works
The bankruptcy means test looks at your income and expenses to decide if you qualify for Chapter 7. First, it compares your average income from the past six months to your state’s median. If it’s below, you pass.
If your income is higher, you must list your allowed monthly expenses—such as rent, taxes, and healthcare—to calculate your disposable income. If that number is too high, you may not qualify for Chapter 7 and might have to file under Chapter 13 instead.
Bankruptcy Means Test Formula
- Start with Gross Monthly Income (GMI)
(Average of the past 6 months before filing) - Compare GMI to State Median Income
→ If GMI ≤ Median Income, you pass the means test → Eligible for Chapter 7
→ If GMI > Median Income, move to Step 3 - Subtract IRS-Allowed Living Expenses & Necessary Deductions
- Food, housing, transportation (based on IRS standards)
- Secured debt payments (e.g., mortgage, car)
- Certain actual expenses (e.g., childcare, taxes)
- Disposable Income (DI) = GMI – Allowed Expenses
- Evaluate Disposable Income Thresholds
→ If DI < Presumed Abuse Threshold → Pass → Chapter 7 allowed
→ If DI > Threshold → Presumed Abuse → Must file under Chapter 13 or rebut the presumption
- Start with Gross Monthly Income (GMI)
Understanding Chapter 7 Income Limits
To begin the means test, the court looks at your income over the past six months. That figure is then compared to the average income for a household of your size in your state.
If your income is below the median, you typically qualify for Chapter 7 bankruptcy without going through the rest of the calculation. If it’s higher, you’re required to complete the full test to show whether you still meet the criteria based on what’s left after subtracting allowed expenses.
The limits vary by location and household size and are updated a few times each year. Before filing, it’s important to check the most current figures.
Chapter 7 Means Test Worksheet: What’s Included
The means test worksheet—Form 122A-2—is required when your income is above the state’s median. Its purpose is to show whether your remaining income, after certain expenses, still qualifies you for Chapter 7.
The form will ask for a breakdown of your regular household expenses—things like rent, insurance, taxes, and transportation costs. Some of these amounts are set by government guidelines, while others are based on what you actually spend each month.
To complete it properly, you’ll need documentation. That includes pay stubs, utility bills, loan statements, and receipts to support the numbers you list.
Many filers miss deductions because they don’t have paperwork ready. Others list expenses that don’t count under the rules.
Small mistakes can raise questions or cause delays. It’s a technical form, but the numbers matter. What you enter—and what you forget—can decide the outcome of your case.
What Happens If You Fail the Means Test?
If the numbers don’t work in your favour, you may not qualify for Chapter 7 bankruptcy. But that doesn’t mean the court denies you protection. It simply means you’ll need to consider a different chapter—most often, Chapter 13.
Under Chapter 13, the court reviews your income, subtracts necessary expenses, and sets a monthly payment toward your debts. The plan runs for several years, but it gives you time and legal protection while you repay what you can.
Sometimes, the result of the means test changes. If your income drops, or if you face new expenses—like medical bills or job loss—you might be able to reapply later. In other cases, errors in the original worksheet can be corrected with updated documentation.
Failing the test doesn’t end the process. It shifts the strategy.
Know Where You Stand Before You File
The bankruptcy means test determines whether you qualify for Chapter 7 or need to consider another option. Even small mistakes—missing income, overstated deductions, or incomplete forms—can change your outcome. The process requires accuracy and a clear understanding of the rules.
Not sure if you qualify for Chapter 7?
Contact us today for a consultation. Consult with a Philadelphia low-cost bankruptcy lawyer to review your means test results and determine your next steps.