If you’re considering filing for Chapter 7 bankruptcy, there’s one critical hurdle you may need to clear: the Means Test. This financial calculation determines whether you qualify for Chapter 7 or if the court will require you to file under Chapter 13 instead. But here’s the catch—it’s not as simple as plugging numbers into a calculator.
At The Law Offices of Paul Y. Lee, we regularly work with clients who are unsure how the Means Test works or whether they even need to take it. In this blog, we’ll break down what the test is, who has to take it, and how we help clients avoid costly mistakes when navigating this complex part of the bankruptcy process.
What Is the Means Test?
The Means Test is a tool used by the bankruptcy court to prevent people with higher incomes from abusing Chapter 7 bankruptcy. If your household income is above California’s median, the court assumes you might be able to repay your debts over time. The Means Test evaluates whether that’s true—and if not, whether you qualify for Chapter 7 after all.
The test compares your current monthly income (CMI) to your IRS-defined allowable expenses, and the result is your disposable income. If your disposable income is low enough, the presumption of “abuse” is removed and you can proceed with Chapter 7.
If not, your case may be dismissed or converted to Chapter 13, where you’ll repay some of your debt over 3 to 5 years.
Who Must Take the Means Test?
Most people filing for Chapter 7 are required to complete the Means Test. However, there are exceptions:
- Your income is below the state median for your household size
- You are a disabled veteran
- You are on active military duty
- Your debts are primarily business debts, not consumer debts
If you fall into any of these categories, you may be exempt from the Means Test entirely. But determining eligibility isn’t always clear-cut, which is why speaking with an attorney is so important.
How the Means Test Works
Here’s a simplified version of the process:
1. Calculate Current Monthly Income (CMI)
This includes all household income from the last six months—wages, rental income, contributions from roommates or family, etc. (Social Security is excluded.)
2. Apply IRS Allowable Expenses
These are not your actual monthly bills but the IRS standard amounts for housing, food, transportation, and other necessities. They may be far lower than what you actually spend.
3. Determine Disposable Income
Subtract IRS expenses from your CMI and multiply by 60. This gives your projected disposable income over five years.
4. Compare to Thresholds
- If your five-year disposable income is less than $7,025, you can likely file Chapter 7.
- If it’s more than $11,725, the court will presume abuse unless you show special circumstances.
- If it falls in between, additional criteria apply.
Why the Means Test Is Complicated
You might think you can run the numbers yourself, but the reality is that small errors can have big consequences. It’s not just about your income—it’s also about correctly identifying allowable expenses, understanding exemptions, and possibly even using legal strategies to rebut the presumption of abuse.
Some questions we help clients answer include:
- What if I’m self-employed or my income fluctuates?
- Can I include childcare or medical costs?
- What qualifies as a “special circumstance”?
- How do I handle joint income or separated spouses?
Don’t Risk Your Bankruptcy Being Denied
The Means Test is one of the most misunderstood and misapplied parts of filing for bankruptcy. If you make a mistake—whether by overreporting income, missing an exemption, or applying the wrong expense category—you could lose your shot at debt relief under Chapter 7.
At The Law Offices of Paul Y. Lee, we conduct a comprehensive review of your finances and help you determine if you qualify for Chapter 7, Chapter 13, or if you have alternatives. We’ve helped hundreds of clients pass the Means Test—or avoid it altogether through proper exemptions and planning.
Call 951-755-1000 today to schedule your free consultation and let us guide you through the process with clarity, accuracy, and experienced legal support.
