Why the Means Test Exists
Before 2005, almost anyone could file for Chapter 7 bankruptcy and discharge their debts quickly. Congress changed that with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which introduced the means test — a two-part income calculation designed to ensure that people who genuinely can repay some debts are pushed toward Chapter 13 instead.
Understanding the means test before you file is critical. Filing Chapter 7 when you fail the means test can result in your case being dismissed — or converted to Chapter 13 — wasting your filing fees and time.
Step 1 — The Income Comparison
Step 1 compares your average monthly income over the past 6 months (called ‘current monthly income’ or CMI) to the median household income for your state and family size. If your CMI is at or below the state median, you pass Step 1 and qualify for Chapter 7 automatically.
CMI includes wages, salaries, rental income, business income, and most other regular receipts — but not Social Security income, which is specifically excluded. The state median figures are updated periodically by the U.S. Trustee Program.
Step 2 — The Disposable Income Calculation
If your income exceeds the state median, you move to Step 2 — a detailed calculation of your actual disposable income after allowed expenses. The allowed expenses aren’t just what you actually spend; they’re a combination of IRS national and local standards plus some actual expenses for specific categories.
If Step 2 shows that your monthly disposable income falls below a certain threshold, you still qualify for Chapter 7 despite earning above the median. If it exceeds the threshold, you likely don’t qualify for Chapter 7 under the means test.
What Counts as Income — and What Doesn’t
Income that counts: wages, net self-employment income, rental income, interest, pension payments, unemployment compensation (in most cases), and regular contributions from others toward household expenses.
Income that doesn’t count: Social Security benefits (all types), payments to victims of war crimes or terrorism, certain income of non-filing spouses in community property states. These exclusions can meaningfully change your eligibility outcome.
When You Fail the Means Test — Your Options
Failing the means test doesn’t mean bankruptcy is off the table. You can file Chapter 13 and repay some debts through a structured plan. Some attorneys also advise clients on legitimate timing strategies — since the means test looks back 6 calendar months, waiting a period during which income was unusually high may change the result.
If you have primarily business debts (not consumer debts), the means test doesn’t apply to you at all. An experienced bankruptcy attorney can assess your situation and identify which path makes the most sense.