How To Pass the Chapter 7 Means Test

The means test determines whether you qualify for Chapter 7 bankruptcy. In the test, you compare your income with your state’s income limits. If your income is less than the median income in your state, you pass the test. If it’s more, you’ll have to take further steps in the means test to see if you’re eligible for Chapter 7. In this article, we’ll look at the means testing forms required for Chapter 7 filers and how to fill them out using your income and expenses.

What Are the Chapter 7 Means Test Forms?

The Bankruptcy Court requires all filers to complete the Chapter 7 Means Test forms to determine their eligibility before they file their full bankruptcy petition. You may need to complete up to three means test forms to determine your eligibility for Chapter 7 bankruptcy relief:

• Chapter 7 Statement of Your Current Monthly Income

• Chapter 7 Means Test Calculation

• Statement of Exemption from Presumption of Abuse

In most cases, when you complete the Statement of Your Current Monthly Income form and you fall below the income limitations, you’re eligible to file for Chapter 7 bankruptcy relief. If you’re above the income limitations, you’ll need to complete the Means Test Calculation form. You pass the means test if your means test calculation shows a negative number or a number close to zero. This means you don’t have disposable income left over after paying your monthly expenses and you’re eligible to file for Chapter 7 bankruptcy relief.

In rare cases, you may be exempt from the means test. We will discuss exemptions more in a later section.

How Do I Fill Out the Statement of Current Monthly Income?

The first form, Chapter 7 Statement of Your Current Monthly Income, is used to calculate your current monthly income and to determine how it compares to the median income limit in your state for your household size. There are a lot of questions, but they can be broken down into three steps.

Step 1: Calculate Your Monthly Income

The first question asks about your marital status. To complete questions 2–11 on this form, you’ll need to calculate your six-month average gross income. Gross income is your income before taxes, Social Security, or other expenses are taken out. 

To calculate your six-month average gross income, you first need to add up your wages, salaries, and tips for the past six months. Then, divide that number by six to get your average monthly income. If you receive any income from sources other than employment, you’ll need to factor that in as well.

Step 2: Calculate Your Annual Income

Next, you need to calculate your annual income to answer question 12. Take your current monthly income amount (from question 11) and multiply by 12. This number is your annual income.

Step 3: Compare Your Income to Families of Your Household Size in Your State

Question 13 requires you to find the annual income of a family of your household size in your state. Finally, question 14 has you compare your annual income from question 12 to the amount in question 13 to see if your income is more or less than the median income for a similarly sized household in your state. 

• If your income is less, you’ve met the means test requirements, and you can file for Chapter 7 bankruptcy. You do not need to fill out any additional means testing forms.

• If your income is more than the limit listed for a family of your size in your state, you’ll need to complete the Means Test Calculation form. Read on to learn how.

How Do I Fill Out the Means Test Calculation?

The goal of the Means Test Calculation form is to determine if you have any disposable monthly income. Under bankruptcy law, havingdisposable income means you have money left over at the end of the month to pay your debt. To qualify for Chapter 7 through the Means Test Calculation, you must have a negative disposable monthly income or an amount close to zero. If your disposable income is positive, you may not be eligible to file Chapter 7. If this applies to you, you may benefit from filing Chapter 13 bankruptcy instead.

The Means Test Calculation form has four parts: 

1. An adjusted income calculation

2. A calculation of your monthly expenses (based on IRS standards and some of your actual expenses)

3. A determination if there is possible abuse of the bankruptcy process

4. A section for you to explain special circumstances to show you’re eligible to file for Chapter 7 bankruptcy

Step 1: Determine Your Adjusted Income

On the Means Test Calculation form, you start by using your income information from the Statement of Your Currently Monthly Income form. Follow the directions on the form to make the adjustments needed to get your adjusted income amount.

Step 2: Outline Your Expenses

Outline your expenses for the six months before filing for bankruptcy to get an average. Expenses, also referred to as deductions, include both your taxes and Social Security deductions as well as your living expenses. The IRS’s allowable living expenses goes into detail about what limits are placed on certain living expenses to ensure a reasonable standard of living. 

Additional living expenses may also be included so long as they can be justified to the trustee. Some examples of additional living expenses could be a larger mortgage or car payment, dependent care, healthcare, court-ordered payments, and involuntary employment deductions.

Step 3: Subtract the Average of Taxes, Social Security, and Living Expenses

Once you’ve outlined all your expenses, add up the exact amounts that you spent for the last six months and divide this number by six to find your average monthly living expenses. Nest, take your current monthly average income and subtract your average living expenses. Your income minus your expenses equals your disposable monthly income.

Step 4: Calculate Disposable Income Limits

If you have a negative disposable income, you can stop here as you have met the means test and can file for Chapter 7. Remember, negative disposable income means that you don’t have money left over at the end of the month to pay down your debt. That means there’s no presumption of abuse, and you’ve “passed” the means test.

Note that if your disposable income is positive, this doesn’t necessarily prohibit you from filing Chapter 7 and getting bankruptcy relief. But having disposable income could lead to a presumption of abuse. In this case, you’d need to prove there are special circumstances that allow you to file Chapter 7 anyway, or you’d need to convert your case to Chapter 13.

Do I Qualify To Be Exempt From the Means Test?

In rare circumstances, you may make more than the median income and still be eligible to file a Chapter 7 bankruptcy without having to run the means test because you qualify for an exemption. If you believe you’re exempt from the means test, you have to fill out the Statement of Exemption from Abuse. This form is a supplement to the Chapter 7 Statement of Your Current Monthly Income. If you file a statement of exemption, then you don’t have to file the Chapter 7 means test form.

The Statement of Exemption from Abuse form has two parts. Each covers a major reason for exemption.

Part 1 asks about the type of debt you have. If your debts are primarily business debts, not consumer debts, then you’re exempt from the means test calculation. Consumer debts are personal or household liabilities.

Part 2 is used to determine if you fall under either of two specific military service provisions:

• You’re a disabled veteran and incurred debts while on active duty or while performing a homeland defense activity, or 

• You’re a reservist or member of the National Guard called to active duty/homeland defense.

If either of these special cases applies to you, check the appropriate boxes on the Statement of Exemption from Abuse form and sign in the appropriate space. Then, submit this form with the Statement of Current Monthly Income. 

Let’s Summarize…

The Chapter 7 means test is used to determine your eligibility to file for Chapter 7. It consists of two main parts. In the first part, you compare your average income with the median income for a similarly sized household. If your income is lower than the median, you pass the means test and are eligible to file Chapter 7 without doing any more means testing. 

If your income is higher than the median, you can move on to the second means testing form which takes your expenses and disposable income into account. If your disposable income is too high to qualify for Chapter 7, you can convert your case to a Chapter 13, which allows you to repay your debts over time through a payment plan. Though the means test and other bankruptcy forms can be confusing, don’t let them deter you from pursuing a fresh start. If you’re filing Chapter 7, remember that Upsolve can help you through the process.