The Short Answer
The bankruptcy means test determines whether you qualify for Chapter 7 or must file Chapter 13, based on your income and expenses. It was introduced in 2005 to prevent higher-income filers from wiping out debt in Chapter 7 when they have the ability to repay some of it. The test uses a six-month backward look at your average monthly income and compares it against your state's median income for your household size. If your income is below the median, you automatically qualify for Chapter 7. If it's above, a second and sometimes third calculation using allowable expenses and your unsecured debt load will determine whether you still qualify or must file Chapter 13.
Simply put, the means test either qualifies you for a Chapter 7 bankruptcy or requires you to file a Chapter 13 bankruptcy based upon disposable income. There may be other reasons to file a Chapter 13 bankruptcy, but we’ll leave those for another topic.
The means test was implemented with the bankruptcy reform laws of 2005, also known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The idea was to close loopholes that allowed higher income households from filing Chapter 7 bankruptcy. The means test became the tool for assessing whether an individual or couple would qualify for Chapter 7 bankruptcy or whether their filing of Chapter 7 bankruptcy would be considered a “presumption of abuse”.
The means takes the following items into consideration, specifically for the six calendar months prior to the month of filing bankruptcy:
Number of individuals in the household including dependants and non-dependants
Household income from all sources including wages and salary, pension and retirement, support from family members, support from others living in the household, child support, 401(k) and retirement withdrawals, self-employment, rental income, investments and basically any other source of income
Income taxes paid
Monthly payments for mortgages or rent
Monthly payments on vehicles
Monthly payments on furniture, appliances, jewelry, etc.
Average monthly child care expense including day care, pre-school, mothers-day-out, and babysitting
Average monthly expense for healthcare insurance, disability insurance, healthcare savings account and term life insurance
Average monthly out of pocket healthcare expenses including co-pays, co-insurance, deductibles, etc. (This is in addition to what is paid for insurance.)
Average monthly charitable contributions
Monthly child support or alimony paid
Expense of administering a Chapter 13 bankruptcy
Other expenses including food, clothing, utilities and gasoline are taken into consideration, but they are based on either Internal Revenue Service or Census guidelines indexed on the household size or income. In other words, your actual monthly expenses are not specifically taken into consideration but guidelines are used to factor in these household expenses. In most cases, the guidelines are fair and often advantageous to you. These are referred to as the guidelines expenses for purposes of this blog.
The means test for bankruptcy is a multi-level approach.
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- The first test is to compare your average household income for the six calendar months prior to filing to the median household income within your state. The median income factors in the number of people within your household. If your actual household income is less than median household income with your state, you automatically qualify for Chapter 7 for purposes of the means test. This is sometimes referred to as the Current Monthly Income or CMI test. If your average household income or CMI is above the median for your state, you must go to the next test.
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- In the second test, your actual monthly expenses and the guideline expenses discussed previously are taken into consideration. These expenses are deducted from your average household income or CMI. This results in your Disposable Monthly Income or DMI. If your household DMI is less than $117.08, there is no presumption of abuse and you qualify for Chapter 7 bankruptcy. If DMI is above $195.41, abuse is automatically assumed and you must file Chapter 13. If DMI is between $117.08 and $195.41, you must go to the next test.
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- In the third test, your DMI is compared to your actual unsecured debt (credit cards, medical bills, personal loans, repossessions, etc.). If your DMI multiplied times 60 months (five years) allows you to pay 25% of your unsecured debts, then you must file a Chapter 13. If there is not enough income to pay 25% of your unsecured debt, you will qualify for a Chapter 7.
It is difficult to simplify the means test. If you use an online means test calculator, be careful, since they do not always take into consideration the complexities of the test. In addition, passing the means test does not always insure that Chapter 7 bankruptcy is best for you. You should seek legal advice for your specific situation.
Key Takeaways
- The means test uses your average household income from the six calendar months before filing — not just your current paycheck — so the timing of when you file can matter.
- If your income is below North Carolina's median for your household size, you pass the means test automatically and qualify for Chapter 7 without any further calculations.
- Above-median filers go through a second test where allowable expenses are subtracted from income to produce Disposable Monthly Income (DMI); a DMI below $117.08 still qualifies you for Chapter 7.
- If your DMI falls between $117.08 and $195.41, a third test compares five years of projected DMI against 25% of your total unsecured debt to make the final call.
- The means test accounts for nearly every income source — wages, retirement withdrawals, rental income, child support received, and more — not just your W-2 salary.
- Expenses like food, clothing, and gas are not based on your actual spending but on IRS and Census Bureau guidelines tied to household size, which often work in your favor.
Attorney Insight
The mistake I see most often is people assuming the means test is purely about what they earn right now. Because the test looks back six full calendar months, someone who just lost a high-paying job may still "fail" the income comparison if those larger paychecks are still inside the lookback window — and then panic thinking they can't file Chapter 7. Timing the filing strategically by even a few weeks can shift the calculation meaningfully. I've also seen the opposite problem: a client who waited too long, collected extra income in the meantime, and pushed themselves over the median unnecessarily.
