Chapter 7 Bankruptcy: The Means Test

Many Americans are struggling with their financial situation but not all of them are eligible for relief under Chapter 7 of the Bankruptcy Code. Chapter 7 limits eligibility to those people who are truly needy and cannot afford to pay their creditors, and it uses a form called the Means Test to determine if a specific debtor is eligible.

The Means Test calculates your average income from the last six months to determine if your income is above or below average for your household size in the area in which you reside. If your income is below median you automatically qualify for Chapter 7 bankruptcy under the Means Test. If your income is above-median, you may still qualify, but you have to show that you have unusually high expenses in the categories which are considered allowed deductions on the form. These include expenses related to taxes, health insurance, out of pocket medical expenses, charitable contributions, etc. If your expenses are sufficiently high enough you will qualify for relief under Chapter 7 of the Bankruptcy Code even though your income is above average where you live.

Not satisfying the Means Test doesn’t mean you don’t qualify for bankruptcy; it just means you don’t qualify for Chapter 7 bankruptcy. You may still have the option of filing under Chapter 13. This may be a less desirable choice than a Chapter 7 case because it requires the debtor to make payments to a trustee for three to five years rather than simply discharging the debt in three to four months. However, for many debtors it is still an infinitely better choice than not filing bankruptcy at all.