The Bankruptcy Means Test in North Carolina

The bankruptcy means test is a federal calculation required under 11 U.S.C. § 707(b)(2) for most individuals who want to file Chapter 7 bankruptcy. It was created by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) to ensure that filers with higher incomes repay some or all of their debts through a Chapter 13 plan rather than discharge them through Chapter 7. The test compares your income to your state's median income and, if above the median, applies standardized expense deductions to determine how much you can theoretically afford to repay.

Most individuals filing Chapter 7 bankruptcy are required to complete the means test. Limited exceptions apply: disabled veterans whose debts were incurred while on active duty or performing homeland defense activities may be exempt. Business debtors whose debts are primarily non-consumer debts are also exempt. All other individual Chapter 7 filers — whether employed, self-employed, or unemployed — must complete the means test regardless of their income level.

Chapter 13 filers are not subject to the same means test that applies to Chapter 7. However, income does matter in Chapter 13 — it determines the length of your repayment plan (3 years for below-median debtors, 5 years for above-median debtors) and the minimum amount your plan must pay to unsecured creditors. If you fail the means test for Chapter 7, Chapter 13 is often the appropriate next step.

"Current monthly income" (CMI) is the average monthly income you received from all sources during the six full calendar months before the month you file. This is then multiplied by 12 to produce an annualized figure for comparison to the state median. CMI does not reflect what you are earning right now — if your income dropped recently, your CMI may be higher than your current take-home pay, and vice versa.

No. Social Security benefits — including retirement benefits, Social Security Disability (SSDI), and Supplemental Security Income (SSI) — are specifically excluded from "current monthly income" under 11 U.S.C. § 101(10A)(B). This means recipients of Social Security or disability benefits often have a lower CMI than their household's actual cash flow, making Chapter 7 more accessible for retirees and disabled individuals.

Current monthly income includes most income other than Social Security: wages and salary, tips, commissions, bonuses, net business income (for self-employed individuals), rental income, interest and dividends, pension and retirement payments (other than Social Security), alimony and maintenance, and regular payments from a household member for household expenses. Child support received for children is generally included as well.

After calculating your current monthly income × 12 (annualized), that figure is compared to North Carolina's median income for a household of your size. The median income figures are published by the U.S. Trustee Program and updated approximately every six months. If your annualized CMI is at or below the median for your household size, you pass the means test automatically — no further calculation is required and there is no presumption of abuse in your case.

If your annualized CMI exceeds the North Carolina median for your household size, you must complete Part 2 of the means test — the disposable income calculation. You are not automatically disqualified from Chapter 7. Part 2 subtracts a series of allowed living expense deductions from your CMI, including IRS National Standards, Local Standards for housing and transportation, and other permitted expenses. After all allowed deductions, most above-median filers still find their disposable income low enough to qualify for Chapter 7.

IRS National Standards are standardized monthly expense allowances for food, clothing and apparel, personal care products, and out-of-pocket healthcare. The amounts vary by household size. The healthcare standard also depends on whether you are under or over age 65. These amounts are fixed — you receive the standard allowance regardless of what you actually spend. National Standards are used in Part 2 to reduce your monthly disposable income.

Local Standards are standardized allowances for housing and utilities and for transportation. Housing allowances vary by county within North Carolina. Transportation allowances depend on the number of vehicles you own or lease and the metropolitan area where you live. You may claim the Local Standard for your area regardless of your actual costs, but you generally cannot exceed it without documentation of special circumstances.

In addition to National and Local Standards, Part 2 allows deductions for: monthly secured debt payments (mortgage, car loans), monthly priority debt payments (taxes, child support), health insurance premiums, disability insurance, health savings account contributions, term life insurance, child care, ongoing retirement contributions (if you were already contributing before filing), and care expenses for a chronically ill or disabled household member. Charitable contributions may also be deducted up to a statutory limit.

Failing the means test means that after all allowed deductions in Part 2, your projected monthly disposable income exceeds the statutory threshold under 11 U.S.C. § 707(b)(2). This creates a presumption of abuse — meaning the court or U.S. Trustee has grounds to challenge your Chapter 7 case. A presumption of abuse does not mean automatic dismissal; it can be rebutted by showing special circumstances. If the presumption cannot be rebutted, Chapter 13 is often the more appropriate path.

Under 11 U.S.C. § 707(b)(2)(B), a presumption of abuse may be rebutted by demonstrating special circumstances that justify additional expense deductions or adjustments to income — provided no reasonable alternative exists. Examples include a serious medical condition creating ongoing expenses beyond IRS standards, or a significant income loss occurring after the six-month lookback period. Detailed documentation and an attorney's guidance are required to successfully rebut the presumption.

If the presumption of abuse cannot be rebutted, the court may dismiss your Chapter 7 case or convert it to Chapter 13. However, failing the means test does not mean bankruptcy relief is unavailable — it may simply mean Chapter 13 is the right chapter. Chapter 13 has no income ceiling and allows individuals with higher incomes to eliminate or restructure debt through a 3- to 5-year repayment plan.

Self-employed individuals use gross business receipts minus ordinary and necessary monthly business expenses to calculate the business income portion of their CMI. The resulting net business income is then averaged over the six-month lookback period along with all other income sources. Because business income can fluctuate significantly, the CMI calculation for self-employed filers is often more complex and benefits from attorney review before filing.

No. Passing the means test is necessary but not sufficient for Chapter 7. You must also not have received a Chapter 7 discharge in the prior eight years or a Chapter 13 discharge in the prior six years. You must complete an approved credit counseling course within 180 days before filing. And all bankruptcy filings must be made in good faith — you cannot file solely to hinder, delay, or defraud creditors. An attorney can review all eligibility requirements in a single free consultation.