The Chapter 7 Means Test, Explained Simply

How the means test works

The test asks two questions in order. First, is your income above or below the median for a household your size in your state? If it is at or below the median, the presumption of abuse does not arise. If it is above, the test subtracts a set of allowed expenses from your income and asks whether what remains, projected over five years, could repay a meaningful portion of your debts.

If the answer is yes, the law presumes abuse. That phrase sounds alarming, but it is not a ruling against you. It is a starting assumption that can be challenged, as explained below.

Who has to take it

The means-test presumption generally applies to individuals filing Chapter 7 whose debts are primarily consumer debts. Consumer debt is debt incurred for personal, family, or household purposes, such as credit cards, medical bills, personal loans, and typically a home mortgage.

Courts commonly read "primarily" to mean more than half of what you owe. If your debts are not primarily consumer debts, the presumption generally does not apply, and you indicate this on Official Form 122A-1Supp. How a particular debt is classified, such as a tax debt or a debt used for mixed purposes, can be disputed, so do not assume which category it falls into.

Some veterans, reservists, and National Guard members are also exempt, as described below.

Step 1: the median-income comparison

The test starts with your "current monthly income." Despite the name, this is not what you earn right now. It is generally the average monthly income received during the six full calendar months before filing. It can include amounts others regularly pay toward household expenses and, in many cases, a spouse's income. Social Security benefits are excluded from this calculation, although other bankruptcy forms may still require you to disclose them.

That average is multiplied by 12 and compared with the median family income for a household of your size in your state. The U.S. Trustee Program publishes these medians using Census Bureau data. They change periodically, so the figure that matters is the one in effect on your filing date, not one quoted in an older article.

If your annualized income is at or below the applicable median, no one may seek dismissal based on the presumption of abuse, and you generally do not need to complete Form 122A-2. That does not guarantee your case cannot be challenged on other grounds, such as bad faith.

If your income is above the median, you move to step 2.

Step 2: the full calculation

Step 2 uses Official Form 122A-2, the Chapter 7 Means Test Calculation. You start with the same current monthly income and subtract allowed expenses. Many deductions use national and local standards based on IRS data, for categories such as food, housing, and transportation. Others reflect your circumstances, such as average payments on secured debts like a mortgage or car loan, and certain priority debts. The exact deductions depend on the form and your facts.

What remains is your monthly disposable income for purposes of the test. It is multiplied by 60 to project it over five years, then compared with two dollar thresholds set by law:

• At or above the higher threshold, abuse is presumed.
• Below the lower threshold, no presumption arises.
• In between, abuse is presumed only if the five-year amount is at least 25 percent of your nonpriority unsecured debt, such as credit card and medical debt that is not backed by collateral and has no special priority.

The thresholds are adjusted periodically, so check the current version of the form for the exact amounts rather than relying on any article's figures.

The expense allowances are standardized, so they may not match your real costs. Someone with unusually high medical expenses or a long commute can look more able to pay on paper than in practice. That is one reason the presumption can be rebutted.

What a "presumption of abuse" means

The U.S. trustee or bankruptcy administrator reviews Chapter 7 filings for potential abuse and must report within 10 days after the first meeting of creditors whether the case is presumed abusive. That deadline describes the process; it does not predict the outcome of any individual case.

A presumption is not a verdict. If it arises and is not rebutted, the court may dismiss the case or, with your consent, convert it to Chapter 11 or Chapter 13. Chapter 13 repays creditors through a court-approved plan lasting three to five years. For a broader comparison of the two chapters, see Chapter 7 vs. Chapter 13: Which Fits Your Situation?

You can rebut the presumption only by showing special circumstances, such as a serious medical condition or a call to active military duty, that justify additional expenses or adjustments to income for which there is no reasonable alternative. You must itemize each expense or adjustment, document it, explain in detail why it is necessary and reasonable, and attest under oath that the information is accurate. The rebuttal succeeds only if those adjustments bring the result below the statutory thresholds.

In plain terms, triggering the presumption does not end your case by itself. It shifts the burden to you to show why the numbers do not tell the whole story.

Who is exempt from the presumption

Three groups are generally exempt from the means-test presumption. Each exemption is claimed on Official Form 122A-1Supp.

Filers whose debts are not primarily consumer debts. If business or other non-consumer debts make up most of what you owe, the presumption does not apply.

Qualifying disabled veterans. A disabled veteran, as defined by statute, is exempt when the debts were incurred primarily while on active duty or performing a homeland defense activity.

Qualifying reservists and National Guard members. Members called to active duty or homeland defense activity for at least 90 days after September 11, 2001 may be excluded during that service and for 540 days after it ends. This exclusion has a statutory end date that Congress has extended several times, so confirm it is still in effect when you file.

These exemptions are narrow and depend on statutory definitions. If you think one might apply to you, raise it early with a bankruptcy attorney rather than assuming it on your own.

What to bring to an attorney

If you meet with a bankruptcy attorney about Chapter 7, the means test will come up. The right paperwork makes that conversation more useful:

• Pay records or other proof of income from every source for the six months before filing
• A list of your monthly expenses, especially housing, transportation, medical costs, and court-ordered payments like child support
• Documentation for anything unusual, such as medical bills, a recent job loss, or military service records
• A list of what you owe and to whom, so the attorney can assess whether your debts are primarily consumer debts

An attorney can review the applicable forms and facts, assess any claimed exemption, and explain what your means-test results do and do not establish.