Chapter 7 Means Test Explanations

The Chapter 7 means test determines whether an individual debtor qualifies for relief under Chapter 7 of the Bankruptcy Code. The test is required by 11 U.S.C. §707(b)(2) and uses formulas based on household income, IRS expense standards, and certain allowed deductions. This guide explains how the means test works, how income and expenses are calculated, when a presumption of abuse arises, and what happens if a debtor does not pass the test.

To review all bankruptcy forms used across different chapters, see Bankruptcy Forms – AccountingPortal. For specific Chapter 7 forms, including required means test forms, visit Chapter 7 Bankruptcy Forms – AccountingPortal.

What the Means Test Is Designed to Determine

The means test evaluates whether a debtor has enough disposable income to repay creditors under a repayment plan rather than receiving a Chapter 7 discharge. It ensures that Chapter 7 is reserved for individuals who cannot afford to pay their debts. Debtors with primarily business debts typically do not need to complete the means test.

Step 1: Calculate Current Monthly Income (Form 122A-1)

The means test begins with Official Form 122A-1, which calculates “current monthly income” (CMI). CMI is the average monthly income received during the six months before filing. It includes wages, business income, rental income, interest, unemployment income, and contributions to household expenses.

The calculated income is then compared with the state median family income for the debtor’s household size. Median income figures are published for bankruptcy purposes by the U.S. Trustee Program using Census Bureau data.

Median Family Income Tables – U.S. Trustee Program

If Income Is Below the State Median

If the debtor’s income is at or below the applicable median, the means test is passed and the analysis ends. The debtor generally qualifies for Chapter 7, subject to other legal requirements.

If Income Is Above the State Median

If the income exceeds the median, the debtor must complete the second part of the means test using Official Form 122A-2.

Step 2: Determine Allowable Expenses (Form 122A-2)

Form 122A-2 calculates disposable income by subtracting standardized and actual expenses from the debtor’s current monthly income. The expenses fall into several categories defined by law.

IRS National Standards (Mandatory)

The Bankruptcy Code incorporates the IRS Collection Financial Standards, also known as National Standards, for certain household expenses. These standards set fixed maximum amounts for:

• Food
• Clothing
• Personal care products and services
• Housekeeping supplies
• Out-of-pocket health care expenses

Debtors must use these fixed amounts regardless of actual spending. These standards are published for bankruptcy purposes by the U.S. Trustee Program.

IRS National Standards – U.S. Trustee Program

Local Standards for Housing and Transportation

Local Standards set maximum allowances for housing, utilities, and transportation expenses. They vary by state, county, and region. The debtor may deduct the allowed standard amount or, in some cases, actual expenses if lower.

Other Necessary Expenses

The means test also allows deductions for actual expenses required for the health, welfare, or production of income of the debtor or dependents, including:

• Term life insurance
• Childcare
• Telecommunication services
• Court-ordered payments
• Certain education expenses

Secured Debt Payments and Priority Claims

Debtors may deduct future payments on secured debts such as mortgages and car loans, as well as priority debts such as recent taxes and domestic support obligations.

Step 3: Disposable Income and the Presumption of Abuse

After subtracting allowed deductions, Form 122A-2 calculates average monthly disposable income. The Bankruptcy Code sets thresholds to determine whether a presumption of abuse arises. If disposable income exceeds statutory limits, the presumption of abuse applies under 11 U.S.C. §707(b)(2).

What Presumption of Abuse Means

A presumption of abuse does not automatically disqualify the debtor from Chapter 7, but it allows the U.S. Trustee, bankruptcy administrator, or creditors to file a motion to dismiss or convert the case to Chapter 13.

Overcoming the Presumption: Special Circumstances

Debtors may rebut the presumption of abuse by demonstrating special circumstances that justify an adjustment to income or expenses. Examples include:

• Serious medical conditions or disability-related expenses
• Unexpected job loss or reduction in income
• Necessary expenses for the care of an elderly, chronically ill, or disabled family member
• Safety-related relocation or security expenses

Special circumstances must be documented, and supporting evidence must be filed with the court.

What Happens If the Debtor Fails the Means Test

If the means test shows a presumption of abuse and the debtor cannot rebut it, the bankruptcy court may:

• Dismiss the Chapter 7 case, or
• Allow the debtor to convert to Chapter 13 (voluntarily or with consent).

In Chapter 13, the debtor proposes a repayment plan lasting three to five years.

Related Chapter 7 Resources

For form-specific instructions, see Chapter 7 Bankruptcy Forms – AccountingPortal. For a complete list of bankruptcy forms used across all chapters, visit Bankruptcy Forms – AccountingPortal.

Official Sources

• Bankruptcy Code – Title 11, United States Code
• 11 U.S.C. §707(b)(2) – Means Test Requirements
• Official Bankruptcy Forms – Judicial Conference of the United States
• U.S. Courts – Bankruptcy Basics
• U.S. Trustee Program – Means Testing and IRS Standards
• Census Bureau Median Income Data (via U.S. Trustee Program)