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You must meet income requirements to qualify for a bankruptcy discharge (debt forgiveness) under Chapter 7. Congress created an “income test” referred to as the Means Test when it made changes to the bankruptcy laws in 2005. “Passing” the Means Test indicates that you may be eligible for a bankruptcy discharge under Chapter 7. Let’s discuss how you can “pass” the Means Test to file Chapter 7.

What is the Means Test?

The Means Test is a standard bankruptcy form that must be completed and filed with the bankruptcy court. The form helps you calculate your average monthly income. That figure is multiplied by 12 to calculate your average annual income. 

The Means Test applies to your entire household. Therefore, even if your spouse is not filing bankruptcy, you must include his or her income when calculating the Means Test. 

The reason you must use household income for the Means Test is that the test compares your average household income to the average income for a household of the same size in your state. The figures used to calculate average income for your state are taken from Census Bureau data for household income. In other words, the test determines if your household’s average annual income is higher or lower than households in your state with the same number of people. 

Where Do I Get the Forms for the Chapter 7 Means Test?

You can download the Means Test and instructions for completing the Means Test from the United States Courts website. However, you will also need other information to complete the forms. You need the current Census Bureau data, IRS Data, and Administrative Expenses Multipliers to complete the calculations required by the Means Test.  You can also take the bankruptcy means test estimate below:

This information is available from the United States Trustee’s Office. You can download the information online at the DOJ’s website. However, the information and data are updated periodically. You must ensure that you are using the most recent data available when you calculate the Means Test. Using outdated information could result in an error in the Means Test calculations. 

How Do I Calculate My Current Monthly Income for the Means Test?

The Means Test is used to calculate your current monthly income. Current monthly income (CMI) is income you receive from all sources during the six months before filing a bankruptcy case. For example, if you file a Chapter 7 bankruptcy petition on April 7, your CMI would be based on all income received during the preceding six months (October 1 through March 31). Feel free to use the calculator below to estimate your average monthly income.

Remember, you must report household income, so you must include your spouse’s income even if he or she is not filing for bankruptcy relief. 

Examples of income you must report on the Means Test include, but is not limited to:

  • Wages
  • Salaries
  • Bonuses
  • Overtime 
  • Net Rental Income
  • Commissions
  • 1099 Income
  • Child Support and Alimony
  • Dividends, Interest, and Royalties
  • Pensions and Retirement Income
  • Net Income from Operating a Business
  • Workers’ Compensation Benefits
  • Annuity Payments
  • Unemployment Compensation

To calculate your current monthly income, add your income from all sources for the six months before filing bankruptcy and divide by six. You need to use gross income before deductions, except in the case of rental income and business income. 

You are not required to include payments received under the Social Security Act (SSDI, SSI, and Social Security retirement) as monthly income on the Means Test. However, you must include this income when you complete other bankruptcy forms, including Schedule I. 

Schedule I is a snapshot of your monthly income. If you have a significant amount of disposable income (income you can pay toward debts), you could be disqualified from filing Chapter 7 even if you pass the Means Test.

If My Income Exceeds the Means Test, Are There Expenses I can Use to Get Below the Means Test?

Your current monthly income (CMI) is multiplied by 12 to calculate your average annual income. Your average annual income is compared to the average income for households of your size in your state. If your annual income is below the state median income, you “pass” the Means Test and should qualify for a bankruptcy discharge under Chapter 7.

If your annual income is above the state median income, you “fail” the first part of the Means Test. However, you could still qualify for Chapter 7 if you pass the second portion of the Means Test.

The second portion of the Means Test deducts allowable monthly expenses from your CMI to calculate your disposable income. Disposable income is income after expenses that may be used to repay your debts. If your disposable income is below a specific amount, you may qualify to file under Chapter 7.

You may deduct actual amounts for certain expenses on the Means Test. Examples of expenses you may deduct include, but are not limited to:

  • Income taxes
  • Mandatory employment deductions, such as union dues, retirement plans, and uniforms
  • Health and disability insurance premiums
  • Term life insurance premiums
  • Secured debt payments for your car and home
  • Childcare expense
  • Alimony and child support payments
  • Charitable contributions (limited to a percentage of your income)

You may also be permitted to deduct expenses for special circumstances. It is important to know that you may be required to provide proof of each expense you claim on the Means Test. It is also important to understand that you may not be allowed to deduct all living expenses. 

You are permitted to deduct normal living expenses such as:

  • Food
  • Housekeeping supplies
  • Clothing
  • Personal care products and services
  • Housing and utility expenses
  • Transportation expense
  • Out-of-pocket health care expenses
  • Other miscellaneous personal expenses

The above expenses are limited and based on the number of people in your household. You must refer to the current national standards for maximum amounts allowed for the above expenses. 

Can I Estimate Whether I Qualify for the Means Test?

There are several Means Test calculators available online that allow you to estimate whether you qualify for Chapter 7. Ascend provides a free Chapter 7 calculator. You can use the calculator to estimate whether you qualify for the Means Test.

Do You Need Help with the Means Test?

The Means Test can be a complicated bankruptcy form to complete. If you are unsure whether you qualify for Chapter 7, you may want to complete our Chapter 7 Bankruptcy Process to learn more about Chapter 7 and whether it is right for you. If you decide to file Chapter 7, we can provide a list of attorneys in your area if you want to talk to an attorney before filing bankruptcy. 

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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