Blog updated on July 9, 2026
An individual debtor who wishes to discharge debts under Chapter 7 of the Bankruptcy Code must usually pass the means test. This device is intended to prevent people with higher incomes who could potentially repay a portion of their debts from misusing Chapter 7. Instead, these debtors must use Chapter 13. The means test thus can be a significant hurdle to overcome.
The state median income comparison
Initially, the means test evaluates the debtor’s earnings against the state’s median income for an equivalently sized household. This assessment calculates the debtor’s average monthly income for the six months immediately preceding the bankruptcy filing. If that figure is below the state median, the debtor automatically passes the means test and is eligible to file for Chapter 7.
Calculating disposable income
Should the debtor’s earnings surpass the state median, the individual can proceed to the second part of the means test, which involves calculating allowable expenses.
These include standard living expenses, such as:
- Housing
- Utilities
- Food
- Transportation
- Healthcare
As well as other costs, such as:
- Payments on secured debts, like a mortgage or car loan
- Child support
- Alimony
The standard living expenses that can be deducted may be predetermined based on schedules developed by the Internal Revenue Service (IRS). By deducting these allowable expenses from total income, the debtor calculates their disposable income. Provided the disposable income remains beneath a designated limit, the debtor successfully satisfies the means test and can proceed with Chapter 7 bankruptcy.
What happens if you fail the means test?
If your income and expenses prevent you from passing the means test, you cannot file for Chapter 7 bankruptcy. The court will likely dismiss your Chapter 7 case, or the assigned U.S. Trustee may file a motion to dismiss it based on a presumption of abuse. This occurs because the test indicates you have enough disposable income to repay part of what you owe.
Failing the test does not leave you without options. You may convert your case to a Chapter 13 bankruptcy. Under Chapter 13, you propose a repayment plan to pay back some or all of your debt over three to five years. This process allows you to restructure your finances under court protection without liquidating your assets.
Exemptions and strategic timing
Certain debtors are exempt from the means test. For example, if more than half of the debtor’s debts are business-related rather than consumer-related, they do not have to complete the means test. Additionally, if the debtor is a disabled veteran and incurred most of their debt while on active duty, they are also exempt from the test.
In some cases, delaying the bankruptcy filing can be beneficial. If a debtor has experienced a recent drop in income, waiting a few months may lower their average monthly income, potentially bringing it below the state median and allowing them to pass the means test without needing to proceed to the second stage.
The means test is a critical but complex part of the Chapter 7 process. An experienced Chapter 7 bankruptcy attorney can be of great assistance in helping you meet the test or in suggesting alternative plans.
What expenses can you deduct on the Chapter 7 means test?
The second part of the means test allows you to subtract certain living expenses from your income to determine if you have enough disposable income to repay creditors. These deductions combine your actual expenses with standardized amounts based on IRS guidelines for your geographic area. You must properly identify all allowable deductions to pass the test.
Allowable deductions on the means test often include the following:
- Secured debt payments: This category includes contractually required payments for your home mortgage, car loans, and any other debts secured by property.
- Taxes: You can deduct federal, state, and local income taxes, along with any property taxes you must pay.
- Involuntary payroll deductions: This category covers mandatory payments your employer deducts from your paycheck, such as union dues, mandatory retirement contributions, and wage garnishments.
- Court-ordered payments: You can deduct alimony, child support, and other payments a divorce decree or other court order requires.
- Childcare expenses: You can deduct reasonable costs for daycare, babysitting, and other services you need to work.
- Healthcare costs: This category includes health insurance premiums and actual out-of-pocket medical and dental expenses that exceed a certain amount.
An attorney can help ensure you claim every allowable deduction.
Do you have to complete the means test if your debts are mostly business debts?
No, you generally do not have to complete the means test if business debts, rather than consumer debts, make up the majority of your total debts. This major exception provides a direct path to Chapter 7 relief for small business owners and individuals with significant business obligations.
To qualify for this exemption, business-related debts must make up more than 50% of your total liabilities. You incur consumer debt for a personal, family, or household purpose, such as credit card charges for groceries or a personal car loan. You incur business debt with a profit motive in mind. You must accurately categorize each debt to determine if you meet this threshold and can bypass the means test.
The Law Office of Gregory Messer in Brooklyn can review your debt situation and advise you about meeting the Chapter 7 means test. Call 347-943-8475 or contact us online to schedule a free initial consultation.