What Is the Bankruptcy Means Test?

Filing for bankruptcy is overwhelming enough, and trying to make sense of each requirement can add to the stress. One of the most common points of confusion is the bankruptcy means test, a term that often sparks worry before you even know what it is or what it measures.

With more than 45 years of experience, our attorneys at Gertz & Rosen guide clients through the means test every day. In simple terms, the bankruptcy means test is a financial screening tool that helps determine which type of bankruptcy fits your situation. It:

• Compares your household income to your state’s median income
• Evaluates what you can reasonably afford to repay each month
• Shows whether you may qualify for Chapter 7 bankruptcy
• Helps determine if Chapter 13 may be the better option

While the means test plays an important role in determining your eligibility for Chapter 7 bankruptcy, it’s just one piece of the overall process. With experienced guidance, it becomes a straightforward and manageable step.

Why Does the Bankruptcy System Even Use a Means Test?

The purpose of the means test is to promote fairness and prevent misuse of the bankruptcy system. Chapter 7 bankruptcy is a powerful form of debt relief that can wipe out many unsecured debts. For this reason, it is reserved for individuals who truly cannot afford to repay their debts.

The means test is not a judgment of your financial history, but a formal process to match you with the appropriate form of relief. Think of it as a sorting mechanism that keeps Chapter 7 available for those who need it most, while directing others toward Chapter 13 repayment plans if they can pay.

How Does the Means Test Actually Work?

The means test is a two-step calculation. Here’s how it works:

Step 1: Compare Your Income to the State Median

First, we calculate your average household income over the last six months. This figure is then compared to the median income for a household of your size in your state. If your income is below this median, you will likely pass and qualify for Chapter 7 bankruptcy.

Step 2: Calculate Your Disposable Income

If your income exceeds the state median, the test proceeds to the second step. This step calculates your disposable income by subtracting specific, legally allowed living expenses from your income. These expenses include:

• Food and clothing
• Housing and utilities
• Transportation costs
• Taxes
• Health care costs
• Child care expenses
• Court-ordered payments

If your disposable income after these deductions is below a certain threshold, you may be eligible for Chapter 7.

What Income Is Counted in the Means Test?

Figuring out which income to include can be confusing, and many people are surprised by what the law requires. The means test considers most sources of income, including:

• Wages, salaries, and commissions
• Income from self-employment or gig work
• Business income
• Rental income
• Pension and retirement income

However, some income is not counted. Most notably, Social Security benefits are excluded from the calculation. Correctly identifying your countable income is critical for an accurate result.

What If I Don’t Pass the Means Test?

Not passing the means test does not mean you’re barred from bankruptcy. It simply indicates that Chapter 13 bankruptcy may be the better route for you. Chapter 13 provides powerful relief, allowing you to reorganize your debts into a three to five-year repayment plan. It also stops collection actions and can help you protect important assets, such as your home or car, from foreclosure or repossession.

How Can a Bankruptcy Attorney Help Me With the Means Test?

Handling the means test on your own can be confusing, and small mistakes can have serious consequences. An experienced bankruptcy attorney can:

• Explain each step clearly
• Calculate your income and expenses accurately
• Identify every deduction you qualify for
• Spot mistakes before they affect your eligibility
• Turn the results into practical advice

With professional guidance, you can approach the means test with confidence and make decisions that reflect your true financial situation.

You Don’t Have to Figure This Out Alone

The means test is a tool meant to help you get the most out of your bankruptcy, not a barrier. Understanding how it works is the first step toward finding the financial relief you deserve. If you’re ready to move forward with bankruptcy, let our experienced attorneys at Gertz & Rosen guide you through the means test and help you make a sound decision for your future. Contact us today.