The Means Test
The choice of chapter 7or Chapter 13is a decision most Debtors voluntarily make. However, in some cases the choice is made for the Debtor through the results of the Bankruptcy “Means Test”. This test was added by Congress in 2005 to identify Debtors who can afford or have “the means” to pay some of their unsecured debts (for instance, credit card debt) and encourage repayment of these debts through a Chapter 13 repayment plan. Debtors that do not “pass” Means Test are disqualified from filing Chapter 7 Bankruptcy.
Despite what you may have heard, many Debtors still qualify for chapter 7 relief, despite this additional hurdle. If someone doesn’t qualify, Chapter 13 is still a great option with powerful relief.
PART ONE: REVIEWING YOUR MEDIAN INCOME
The Means Test is divided into two parts, both of which focus on your income and expenses. The first part determines whether your current monthly income is less than your state’s median income for a household of your size. Here are the current median income figures for Debtors filing after March 15, 2023:
FAMILY SIZE
| STATE | 1 EARNER | 2 PEOPLE | 3 PEOPLE | 4 PEOPLE * |
|---|---|---|---|---|
| Alabama | $38,642 | $46,900 | $52,460 | $64,016 |
| Alaska | $51,950 | $75,460 | $81,447 | $85,964 |
| Arizona | $42,603 | $55,404 | $59,659 | $67,113 |
| Arkansas | $32,834 | $44,081 | $49,599 | $54,401 |
| California | $48,009 | $62,970 | $68,670 | $78,869 |
| Colorado | $48,598 | $64,679 | $70,861 | $83,976 |
| Connecticut | $57,863 | $71,961 | $83,655 | $103,314 |
| Delaware | $48,415 | $62,432 | $68,518 | $85,305 |
| DC | $48,822 | $80,172 | $80,172 | $80,172 |
| Florida | $40,029 | $50,130 | $54,594 | $65,135 |
| Georgia | $39,384 | $52,024 | $56,682 | $69,239 |
| Hawaii | $50,664 | $64,179 | $75,670 | $86,587 |
| Idaho | $39,050 | $48,648 | $55,453 | $61,480 |
| Illinois | $46,355 | $60,073 | $69,910 | $81,097 |
| Indiana | $40,135 | $51,104 | $59,028 | $69,226 |
| Iowa | $40,456 | $56,036 | $63,510 | $75,569 |
| Kansas | $41,654 | $57,174 | $64,863 | $69,272 |
| Kentucky | $37,606 | $45,081 | $51,883 | $63,768 |
| Louisiana | $38,108 | $46,704 | $55,699 | $67,239 |
| Maine | $39,497 | $51,600 | $59,050 | $68,466 |
| Maryland | $55,774 | $74,493 | $87,152 | $103,361 |
| Massachusetts | $55,049 | $68,243 | $83,736 | $102,110 |
| Michigan | $42,562 | $50,738 | $60,161 | $71,758 |
| Minnesota | $45,760 | $61,690 | $74,082 | $85,146 |
| Mississippi | $32,658 | $41,579 | $47,058 | $55,711 |
| Missouri | $39,332 | $51,120 | $58,610 | $69,832 |
| Montana | $38,577 | $52,412 | $56,265 | $67,921 |
| Nebraska | $38,915 | $54,124 | $65,486 | $71,097 |
| Nevada | $43,041 | $57,541 | $60,783 | $70,509 |
| New Hampshire | $51,460 | $63,534 | $82,465 | $89,990 |
| New Jersey | $59,060 | $70,680 | $85,573 | $101,106 |
| New Mexico | $37,274 | $51,855 | $52,303 | $53,709 |
| New York | $46,295 | $57,777 | $68,396 | $83,942 |
| North Carolina | $37,781 | $50,630 | $55,468 | $67,578 |
| North Dakota | $41,443 | $56,411 | $69,328 | $79,637 |
| Ohio | $40,749 | $51,319 | $60,247 | $72,625 |
| Oklahoma | $36,884 | $49,711 | $54,135 | $64,037 |
| Oregon | $44,707 | $55,553 | $60,523 | $72,767 |
| Pennsylvania | $44,897 | $53,706 | $67,113 | $79,916 |
| Rhode Island | $46,136 | $58,511 | $72,184 | $88,593 |
| South Carolina | $37,055 | $50,500 | $52,738 | $63,074 |
| South Dakota | $35,582 | $53,443 | $58,794 | $68,016 |
| Tennessee | $38,144 | $47,194 | $53,227 | $63,217 |
| Texas | $38,294 | $55,178 | $56,445 | $65,477 |
| Utah | $50,635 | $56,126 | $61,944 | $69,834 |
| Vermont | $43,042 | $57,948 | $65,829 | $78,392 |
| Virginia | $50,296 | $63,613 | $73,260 | $86,990 |
| Washington | $49,930 | $63,224 | $72,524 | $82,602 |
| West Virginia | $39,750 | $42,607 | $51,350 | $60,280 |
| Wisconsin | $41,150 | $56,080 | $66,256 | $77,438 |
| Wyoming | $46,172 | $60,829 | $69,677 | $76,361 |
* The Means Test adds $7,500 for each individual in excess of 4.
If your family’s income is less than your State’s median income for a family of your size, you “pass” the Means Test. There is no other testing and you can proceed with a chapter 7 bankruptcy(provided you meet other requirements such as current payments on secured debts).
Part Two: Income, Expenses, and Deductions
If your current monthly income exceeds the State’s median, you must move to the second part of the Means Test, which calculates whether you have (or should have) “the means” to repay your unsecured creditors (at least some percentage).
In this part, you must deduct certain expenses from your currently monthly income based on national standards set by the IRS. The amount remaining after deducting these allowable expenses is known as your “disposable income.” This disposable income amount is then multiplied by 60 to determine your disposable monthly income over the next five years. If the total amount is less than $6000, then you have passed the Means Test and may file for Chapter 7 bankruptcy. On the other hand, if your total is over $10,000 and you choose to file, the Court may ultimately dismiss your case. In the end, if you are able to pay all or some of your unsecured debt, you will be disqualified from filing for Chapter 7 relief. If this occurs, you can still seek protection under Chapter 13 Bankruptcy.
There are certain exceptions to this general rule, including recent unemployment, decrease in pay, etc. It is critical to discuss your situation with an experienced Bankruptcy lawyer to determine if an exception applies and you can still file for Chapter 7.
DON’T WORRY! YOU LIKELY QUALIFY DESPITE THE MEANS TEST
Despite what you may have heard over the past few years, very few Debtors fail the Means Test. Many Debtors earn significant incomes and still qualify for Chapter 7 Bankruptcy.
Many of my clients with secured debts, such as a house or vehicle, often pass the Means Test, as there is no extra money at the end of the month to pay unsecured creditors. Other factors that help support a Chapter 7 are child support payments, HOA dues, property taxes, and other necessary debts.