The bankruptcy means test is an income-based method used to determine whether debtors qualify to have their debts wiped out under Chapter 7 of the bankruptcy code or restructured through Chapter 13. It is designed to limit eligibility for Chapter 7 liquidation to debtors who genuinely struggle to pay their debts or have insolvent businesses.
Below, we’ve spelled out the bankruptcy means test requirements and instructions for how to complete it.
Not every debtor who wishes to file for Chapter 7 bankruptcy must take the means test. Your eligibility for Chapter 7 depends on your income level and whether most of your debts are consumer (personal) or nonconsumer (business) debts. The table below provides a summary of which debtors are and are not required to take the means test.
|Required to Take the Means Test||NOT Required to Take the Means Test|
|Individual debtors with more than 50% consumer debt and income that is more than the state median for their household size||Individuals with more than 50% consumer debt and income that is less than the state median for their household size|
|Info||Individual debtors (including sole proprietors and general partners) with more than 50% nonconsumer debt|
The means testing process involves two forms: 1) Official Bankruptcy Form 22A-1, also known as the “Chapter 7 Statement of Your Current Monthly Income,” and 2) Official Bankruptcy Form 22A-2, otherwise referred to as the “Chapter 7 Means Test Calculation.”
The first form compares your income to the state median for a similar household size. Steps 1 through 3 below will help you complete Form 22A-1. The second form — which you only need to complete if your income exceeds the state median — calculates your disposable income to determine whether you still qualify for Chapter 7 or must instead reorganize your debts through Chapter 13. Step 4 below will guide you through Form 22A-2.
Step 1: Calculate Your Current Monthly Income (CMI)
Your current monthly income (CMI) is your average monthly income from the six months prior to the date you file your bankruptcy petition, which is also known as the “look back period.” If you are filing jointly with your spouse, your CMI will include the sum of both of your incomes.
To calculate your CMI, add all of the income you received from the sources listed in the table below (and other income not listed such as disability benefits), then divide that figure by six. For example, if your total income from the past six months is $21,000, your CMI would be $3,500 ($21,000 / 6 = $3,500).
|CMI Includes||CMI Does NOT Include|
|Employment Income and/or Net Income from Self-Employment, Business or Farm||Social Security Benefits|
|Nondebtor Contributions to Household Expenses (e.g., if a roommate or family member pays your utility bill)||Damages Awarded for Personal Injury|
|Domestic Support Income (e.g., alimony or child support)||Payments Received as a Victim of a War Crime, a Crime Against Humanity or International/Domestic Terrorism|
|Net Income from Rental & Other Real Property||–|
|Pension & Retirement Benefits||–|
|Interest, Dividends & Royalties||–|
Step 2: Calculate Your Annualized CMI
In order to complete Part 2 of Official Bankruptcy Form 22A-1, you must calculate your annualized CMI. To do so, simply take the figure you calculated from Step 1 (in the above example, $3,500) and multiply it by 12 ($3,500 x 12 = $42,000).
Step 3: Determine Your Eligibility for Chapter 7
Once you’ve calculated your annualized CMI, you will need to compare it with the applicable median income for a family of your size in your state, which are listed in the table below (figures are current as of Feb. 27, 2015).
If your annualized CMI is:
- Less than or Equal to the State Median Family Income: You may file for Chapter 7 bankruptcy.
- Greater than the State Median Family Income: Proceed to Step 4 below the following table.
Current State Median Family Income Guidelines
For each additional household member beyond four people, add $8,100.
|1 Earner||2 People||3 People||4 People|
|District of Columbia||$48,638||$77,117||$77,117||$77,117|
|Commonwealth or U.S. Territory||Family Size|
|1 Earner||2 People||3 People||4 People|
|Northern Mariana Islands||$26,171||$26,171||$30,448||$44,784|
|U.S. Virgin Islands||$30,921||$37,163||$39,624||$43,412|
Step 4: Calculate Your Disposable Income
This is where the Means Test gets complicated. We strongly recommend employing the assistance of your bankruptcy attorney to complete this step.
Here, you will determine whether you will have sufficient disposable income to repay a portion or all of your unsecured debts through Chapter 13 bankruptcy. To do so, you must complete Official Bankruptcy Form 22A-2, or the “Chapter 7 Means Test Calculation.” You will need to file this form with Official Bankruptcy Form 22A-1. If you are filing jointly with your spouse, you will need information for both of you.
First, you need to estimate your disposable income for the next 5 years (60 months). To calculate that figure, subtract the allowed expenses (as determined by the National and Local Standards issued by the Internal Revenue Service) and total secured debts from your adjusted CMI, the instructions for which are detailed on the form.
If your disposable income for the next 5 years is (figures below are current as of Feb. 27, 2015):
- Less than $7,475: You may file for Chapter 7 bankruptcy.
- Greater than $12,475: You may claim special circumstances that that allow you to file for Chapter 7 bankruptcy. Otherwise, you may file for Chapter 13 bankruptcy.
- Greater than $7,475 but Less than $12,475: You must calculate your total nonpriority unsecured debts and multiply that number by 25% (or .25). If the result is less than your disposable income for 5 years, you may file for Chapter 7 bankruptcy. If the result is greater than or equal to your disposable income for 5 years, you may claim special circumstances that allow you to file for Chapter 7 bankruptcy. Otherwise, you may file for Chapter 13 bankruptcy.
Not all bankruptcy rules are set in stone. Means testing is one area that provides some flexibility. If your income is more than the state median — which under ordinary circumstances would disqualify you for Chapter 7 bankruptcy — follow the tips to help improve your chances of successfully passing the means test.
- Debt Classification Matters: If your overall debt load is more than 50% consumer debt — including a high amount of student loans — you may still be able to pass the means test and qualify for Chapter 7. This is because some courts classify student loans as “nonconsumer debt.” If your court follows such a system, you can subtract your total student debt from your total consumer debt and boost your total nonconsumer debt to more than 50%. This will allow you to automatically pass the means test.
- Honesty Is the Best Policy: Ignore anyone telling you to maximize certain deductions — including retirement contributions and continuing charitable contributions — from your income to lower your disposable income and help you qualify for Chapter 7. That is a mistake. Only report what you actually contributed. Fraud is one area of bankruptcy where rules cannot and will not bend. If the court discovers that you intentionally tried to lower your disposable income, your case will not only be dismissed, but you could also face criminal charges and fines.
- Don’t Leave Out Any Expenses: The IRS provides guidelines for the amounts of certain expenses that you can report. For other expenses — such as tax obligations, secured debt payments (e.g., mortgage or student loan), and health or disability insurance — you can report actual dollar amounts. Make sure you include all of your monthly expenses on the appropriate bankruptcy form and gather all documentation needed to prove your obligations. These payments will help you legitimately lower your disposable income. Otherwise, you risk exaggerating your ability to repay unsecured debts.
The means testing process unfortunately isn’t as straightforward as many debtors would prefer it to be. Some debtors must overcome certain obstacles in order to pass. To help filers navigate the means testing landscape, we’ve consulted a panel of bankruptcy experts for advice. Click on the experts’ profiles to read their bios and responses to the following key questions:
- What are the biggest problems debtors run into with regard to means testing, and how can they avoid them?
- What types of “special circumstances” are likely to help debtors qualify for Chapter 7 bankruptcy if their income is more than the state median for a similar household size?
- Suppose a debtor was unemployed during the six months leading up to his or her bankruptcy filing and passed the means test. However, that debtor found employment a week after the bankruptcy process began. Can the bankruptcy proceed? What are the possible outcomes of this scenario?
- Just because a debtor “failed” the means test doesn’t mean he or she should file for Chapter 13 bankruptcy instead. What are other good alternatives to Chapter 7?