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What Is the Means Test?

The means test is a formula that determines whether your household income is low enough to file Chapter 7 bankruptcy. It was added to the Bankruptcy Code in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) and is codified at 11 U.S.C. Section 707(b).

Before 2005, almost anyone could file Chapter 7 regardless of income. Congress decided that higher-income debtors who could afford to repay at least some of their debts should not be allowed to wipe everything clean through Chapter 7. The means test was their solution -- a standardized income-and-expense formula that separates debtors who genuinely cannot pay from those who can.

The means test only applies to individual debtors with primarily consumer debts. If your debts are primarily business debts, or if you are filing as a business entity, the means test does not apply to you.

The test is completed on Official Form 122A-1 (Chapter 7 Statement of Your Current Monthly Income) and, if needed, Form 122A-2 (Chapter 7 Means Test Calculation). These forms are filed with your bankruptcy petition.

Step 1: Compare Your Income to the State Median

The first step is straightforward: calculate your "current monthly income" (CMI) and compare it to the median income for your state and household size.

What Counts as "Current Monthly Income"

Current monthly income is not just your paycheck. It is the average of all income from all sources that you received during the 6 full calendar months before your filing date. This includes:

• Wages, salary, tips, bonuses, overtime, and commissions
• Net business income (gross revenue minus ordinary business expenses)
• Rental and real property income
• Interest, dividends, and royalties
• Pension and retirement income
• Unemployment compensation
• State disability insurance
• Regular contributions from others for household expenses (a partner paying half the rent counts)
• Alimony and child support received

The Median Income Comparison

Once you have your CMI, multiply it by 12 to get an annualized figure. Then compare it to the median income for your state and household size. The U.S. Trustee Program publishes these figures at justice.gov/ust, updated roughly every six months based on Census Bureau data.

For example, if you are a household of 3 in Kansas and the median income for that category is $82,000, and your annualized CMI is $75,000, you are below the median. You pass the means test. You do not need to complete Step 2.

If you are above the median, you move to Step 2 -- the full disposable income calculation.

Step 2: Calculate Your Disposable Income

This is where the means test gets detailed. If your income exceeds the state median, you must calculate your "disposable income" -- your CMI minus a specific set of allowed deductions. The deductions are not based on what you actually spend. Most are based on IRS standards and fixed allowances.

IRS National and Local Standards

The means test uses IRS Collection Financial Standards to determine your allowed living expenses. These are the same standards the IRS uses when negotiating payment plans with taxpayers. They include:

• National Standards for food, clothing, and other items -- a fixed allowance based on household size. You get this amount regardless of what you actually spend.
• Local Standards for housing and utilities -- based on your county. Includes mortgage/rent and utilities. If your actual housing costs are lower, you still get the standard amount. If higher, you get the standard.
• Local Standards for transportation -- two components: an ownership cost (if you have a car payment) and an operating cost (based on region). If you own your car free and clear, you get only the operating cost allowance.

Actual Expense Deductions

On top of the IRS standards, you can deduct certain actual expenses:

• Secured debt payments -- your actual monthly payments on mortgages, car loans, and other secured debts, averaged over 60 months
• Priority debt payments -- amounts owed for priority claims like back taxes and domestic support obligations, divided over 60 months
• Tax withholdings -- federal, state, and local income taxes, Social Security, and Medicare
• Mandatory payroll deductions -- union dues, uniform costs, and similar required deductions
• Health insurance, disability insurance, and health savings account contributions
• Childcare and dependent care expenses
• Court-ordered payments -- alimony and child support you pay
• Education expenses for dependent children up to $156.25/month per child (for attendance at a private or public elementary or secondary school -- not college)
• Telecommunications expenses -- an additional allowance for phone and internet if not already covered by IRS standards
• Chapter 13 administrative expenses -- if you would need to file Chapter 13 instead, you can deduct the estimated trustee fee (typically around 6-10% of plan payments)

The 60-Month Test

After subtracting all allowed deductions from your CMI, you have your monthly disposable income. The test then projects this out over 60 months (5 years) to see how much you could hypothetically repay unsecured creditors.

What If You Fail the Means Test?

Failing the means test does not mean you cannot file bankruptcy. It means you cannot file Chapter 7 without overcoming the presumption of abuse. You have several options:

Rebut the Presumption

The presumption of abuse can be rebutted if you can demonstrate "special circumstances" that justify additional expenses or adjustments to income. The statute gives two examples:

• A serious medical condition
• A call or order to active duty in the Armed Forces

These are examples, not an exhaustive list. Courts have considered other circumstances like job loss, divorce, and caring for a disabled family member. However, you must document the special circumstances in detail -- including the amount of the additional expense or income adjustment, and why the situation is beyond your control. A vague claim of hardship is not enough.

File Chapter 13 Instead

The most common alternative to Chapter 7 for above-median debtors is Chapter 13. In Chapter 13, you propose a 3-to-5-year repayment plan and make monthly payments to a trustee who distributes the funds to your creditors. At the end of the plan, remaining qualifying debts are discharged.

Chapter 13 has its own eligibility requirements -- primarily debt limits (currently $2,750,000 in combined secured and unsecured debts as of the 2024 adjustment) -- but there is no means test for Chapter 13. If you have regular income and debts within the limits, you can file.

Wait and File Later

Because the means test uses your average income over the prior 6 months, your result can change over time. If you recently had a high-income period (a bonus, severance, overtime surge, seasonal work), waiting a few months can bring your CMI below the median. This is a legitimate strategy -- you are not gaming the system, you are filing at a time that accurately reflects your current financial situation.

Who Is Exempt from the Means Test?

Several categories of debtors do not have to take the means test at all:

Primarily Business Debts

If more than half of your debts are business debts (not consumer debts), the means test does not apply. Section 707(b) only authorizes dismissal for abuse in cases where the debts are "primarily consumer debts." Business debts include debts incurred in connection with operating a business, investment debts, and tax debts from a business.

Disabled Veterans

Under Section 707(b)(2)(D)(i), the means test does not apply to disabled veterans whose indebtedness occurred primarily during a period of active duty or while performing a homeland defense activity. This exemption applies regardless of disability rating -- it requires only that the veteran has a disability and that the debts arose primarily during service.

Reservists and National Guard Members

Under Section 707(b)(2)(D)(ii), members of a reserve component of the Armed Forces or the National Guard are exempt from the means test if they were called to active duty or performed homeland defense activity for at least 90 days after September 11, 2001, and filed their bankruptcy case within a specified period following release from duty.

Below-Median Income

Technically, below-median debtors are not "exempt" -- they still complete Form 122A-1. But they pass automatically at Step 1 without needing the full calculation. The practical effect is the same: if your income is at or below the median, the means test is not an obstacle.

Common Deductions That Help

Many debtors who are above the median on raw income end up passing the means test once deductions are applied. Here are the deductions that most commonly make the difference:

Taxes and Mandatory Payroll Deductions

Federal, state, and local income taxes (based on what you actually pay or are required to pay, not what is withheld at a higher rate by choice), plus Social Security and Medicare taxes. Union dues and mandatory retirement contributions also count. For self-employed debtors, the self-employment tax (the employer-equivalent share of Social Security and Medicare) is deductible.

Health Insurance and Medical Expenses

Your actual health insurance premiums are deductible, whether employer-sponsored or individual. If you have out-of-pocket medical expenses that exceed the IRS national standard allowance, you can deduct the excess as well. Health Savings Account (HSA) contributions are also deductible.

Childcare and Dependent Care

The actual cost of childcare necessary for a parent to work -- daycare, after-school care, summer programs. This can be a large number and can single-handedly push a debtor below the threshold.

Private School Tuition (Limited)

Up to $156.25 per month per child for private or public school expenses beyond what is normally provided. This covers things like uniforms, fees, and special educational needs. College tuition does not qualify.

Vehicle Ownership and Operating Costs

If you have a car payment, you get both the IRS ownership allowance and the operating cost allowance. If you own your car free and clear, you get only the operating cost. Some debtors find it counterintuitively beneficial (for means test purposes) to have a car payment, because the ownership allowance is substantial. The ownership allowance is per vehicle, up to two vehicles for a household.

Secured Debt Payments

All secured debt payments -- mortgage, car loans, furniture loans, anything secured by collateral -- are deducted based on the total amount due over the next 60 months divided by 60. This includes any arrearage cure payments. For many homeowners with a mortgage payment, this deduction alone is enough to pass the means test.

Priority Debt Payments

If you owe back taxes, past-due domestic support obligations, or other priority debts, you can deduct 1/60th of the total priority debt. This can provide a meaningful deduction for debtors with significant tax debt.

Means Test vs. Chapter 13 Disposable Income

One of the most confusing aspects of bankruptcy law is that the term "disposable income" means different things in different contexts. The means test and the Chapter 13 plan calculation are related but distinct.

A debtor can pass the Chapter 7 means test but still face significant payment obligations in Chapter 13. Conversely, a debtor who fails the means test might find that Chapter 13 requires less than expected, depending on the specific deductions and debt profile. The two calculations often produce different monthly numbers because they use some different inputs and serve fundamentally different functions.

In Chapter 13, the disposable income calculation under Section 1325(b) determines how much of your income must go to unsecured creditors through the plan. For above-median debtors, it uses the same IRS-standards approach. For below-median debtors, it uses actual expenses -- what you really spend -- which can be higher or lower than the IRS standards.

Tips for Completing the Means Test

1. Gather 6 months of income documentation. Pay stubs, tax returns, bank statements, benefit statements. Every dollar of income during the 6-month lookback period must be accounted for.
2. Identify your household size carefully. The means test uses household size, not just the number of people on the petition. Dependents who live with you count. The definition of "household" has been interpreted differently by different courts -- some use the Census Bureau definition, some use an economic unit test, and some use the IRS dependent test.
3. Use the correct median figures. The U.S. Trustee publishes updated medians periodically. Use the figures in effect on your filing date, not the date you start preparing the forms.
4. Do not overlook deductions. Many debtors leave deductions on the table. Health insurance premiums, mandatory retirement contributions, childcare, special education expenses, and the Chapter 13 administrative expense multiplier can all reduce your disposable income.
5. Time your filing strategically. If you received a large bonus, tax refund, or had seasonal overtime during the lookback period, waiting a few months can change your CMI significantly.
6. Review your petition for accuracy. Question 9 on the bankruptcy petition asks about prior filings. Form 122A requires details about income from all sources. Inaccurate information can lead to denial of discharge or allegations of fraud.

The Big Picture

The means test is a mechanical formula. It does not measure whether you are a "deserving" debtor. It does not look at why you are in debt, whether you acted responsibly, or whether your situation was caused by circumstances beyond your control. It simply asks: given your income and standardized expenses, could you repay a meaningful portion of your unsecured debts over 5 years?

For most filers, the means test is not a barrier. According to data from the Executive Office for United States Trustees, the vast majority of Chapter 7 filers have income below the state median and pass at Step 1. For above-median debtors, many pass at Step 2 after deductions. The means test blocks a relatively small percentage of filers.

But for those it does block, the consequences are significant. A failed means test means either rebutting the presumption of abuse (difficult without clear special circumstances), converting to Chapter 13 (a 3-to-5-year commitment), or dismissing the case and losing the filing fee. Understanding the means test before you file -- and planning your filing timing around it -- can save you time, money, and frustration.