Understanding the Means Test and Chapter 7 Eligibility
If you are considering bankruptcy, you may have heard about the bankruptcy means test. The means test is used primarily to determine whether an individual debtor qualifies for Chapter 7 bankruptcy or whether additional analysis is required. It considers your income, household circumstances, and certain allowed expenses to evaluate your financial ability to repay debts.
At CN Bankruptcy Law, we help individuals understand how the means test may affect their bankruptcy options and whether Chapter 7 or Chapter 13 may be appropriate for their financial situation.
What Is the Bankruptcy Means Test?
The bankruptcy means test was created to evaluate whether certain individuals seeking Chapter 7 relief have sufficient disposable income to repay a portion of their debts.
The calculation generally begins by reviewing income received during a specified period before filing bankruptcy. Your income is then considered in relation to applicable median income figures and, when necessary, permitted expenses and deductions.
The calculation can be more complicated than simply comparing your current salary with a single income limit.
How Does the Means Test Work?
The means test generally involves multiple steps. Depending on your circumstances, factors that may affect the calculation include:
- Household income
- Household size
- Applicable median income figures
- Certain housing and utility expenses
- Transportation costs
- Taxes and payroll deductions
- Certain secured debt payments
- Certain priority debts
- Other expenses permitted under bankruptcy rules
Income limits and expense standards can change, making it important to use current information when evaluating eligibility.
What If Your Income Is Above the Median?
Having income above the applicable median does not automatically mean you cannot file Chapter 7 bankruptcy. If your income exceeds the relevant threshold, additional calculations may be necessary to determine whether you have sufficient disposable income under the means-test rules.
Some individuals with above-median income may still qualify for Chapter 7 after permitted expenses and other relevant factors are considered.
What Happens If You Do Not Qualify for Chapter 7?
If the means test indicates that Chapter 7 is not appropriate, bankruptcy relief may still be available.
Chapter 13 bankruptcy allows qualifying individuals with regular income to reorganize their debts through a court-approved repayment plan, generally lasting three to five years. Chapter 13 may also provide options for individuals who need to catch up on certain secured debts, address mortgage arrears, or retain property that could present concerns in Chapter 7.
Does Everyone Have to Take the Means Test?
The means test does not apply in exactly the same way to every bankruptcy filer. Certain circumstances and types of debt may affect whether the test applies or how it is completed.
Because bankruptcy eligibility involves more than one calculation, it is helpful to have your complete financial circumstances reviewed rather than assuming you do or do not qualify based solely on your income.
Why Accurate Information Matters
The means test relies on detailed financial information. Errors involving income, household size, expenses, or other calculations can affect the evaluation of your bankruptcy options.
Before filing, gather accurate records relating to your income and expenses. Your bankruptcy attorney can review this information, apply the appropriate standards, and explain how the results may affect your case.
Find Out How the Means Test May Affect You
The bankruptcy means test can seem complicated, but it should not prevent you from exploring your debt-relief options. Even if you have a steady or relatively strong income, you may still have bankruptcy options depending on your debts, expenses, assets, and other circumstances.
At CN Bankruptcy Law, we can review your financial information, explain the means-test process, and help you determine whether Chapter 7, Chapter 13, or another approach may be appropriate.
Discuss Your Bankruptcy Eligibility
Contact CN Bankruptcy Law to learn how the bankruptcy means test may affect your eligibility and explore your options for addressing overwhelming debt.
Bankruptcy means-test calculations, median income figures, expense standards, and eligibility requirements can change and depend on individual circumstances. This information is for general informational purposes and does not constitute legal advice.
