{"id":4741,"date":"2011-08-17T09:00:03","date_gmt":"2011-08-17T09:00:03","guid":{"rendered":"http:\/\/www.duncanlawonline.com\/?p=4741"},"modified":"2026-06-08T12:40:01","modified_gmt":"2026-06-08T16:40:01","slug":"why-does-the-means-test-look-at-my-gross-income-instead-of-net-income","status":"publish","type":"post","link":"https:\/\/www.duncanlawonline.com\/staging\/8350\/why-does-the-means-test-look-at-my-gross-income-instead-of-net-income\/","title":{"rendered":"Why Does the Means Test Look at My Gross Income Instead of Net Income?"},"content":{"rendered":"
\"04-rebuilding-after-bankruptcy.webp\"<\/figure>\n

If you are thinking about filing bankruptcy, you have probably heard about the "means test." And if you have started looking at it, you may feel confused or even a little angry.<\/p>\n

Here is what bothers most people. The means test starts with your gross income<\/strong>, not your take-home pay. That can feel unfair. After all, you never actually see all of your gross income. A big chunk goes to taxes, health insurance, and retirement before the money ever hits your bank account.<\/p>\n

So why does the law look at the bigger number instead of what you really have to live on?<\/p>\n

This article explains why the means test starts with gross income, what that means for you, and how it works in North Carolina.<\/p>\n

The Short Answer<\/h2>\n

The means test uses your gross income because federal law says it must. A 2005 law called the Bankruptcy Abuse Prevention and Consumer Protection Act (often called BAPCPA) created the means test. It set gross income as the starting point for everyone.<\/p>\n

Lawmakers wanted one fair, simple way to compare people. Two people might earn the same gross pay but take home very different amounts because of different deductions. Using gross income gives everyone the same starting line.<\/p>\n

But here is the relief. The means test does not stop at your income. It also subtracts many of your expenses. Gross income is just where the test begins. It is not where it ends.<\/p>\n

What Is the Means Test?<\/h2>\n

The means test is a math formula. Congress created it to decide who can file Chapter 7 bankruptcy<\/a> and who may need to file Chapter 13 instead.<\/p>\n

Chapter 7 is sometimes called "liquidation" bankruptcy. It can wipe out many unsecured debts, like credit cards and medical bills. Because Chapter 7 is so powerful, the law added the means test to make sure it goes to people who truly need it.<\/p>\n

The test works in two main steps:<\/p>\n

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  1. Compare your income to the North Carolina median.<\/strong> The test looks at your average gross income over the six months before you file. It then compares that number to the median income for a household your size in North Carolina.<\/li>\n
  2. Look at your expenses if needed.<\/strong> If your income is below the median, you usually pass and can file Chapter 7. If your income is above the median, the test keeps going. It subtracts allowed expenses to find your "disposable income."<\/li>\n<\/ol>\n

    So gross income is just the doorway. Your expenses still matter a great deal.<\/p>\n

    Why Gross Income Instead of Net Income?<\/h2>\n

    This is the question almost everyone asks. The simple reason is fairness. Gross income gives everyone an equal starting point.<\/p>\n

    Think about two neighbors. Both earn $60,000 a year in gross pay. But their take-home pay is very different.<\/p>\n