The means test was designed to limit the use of Chapter 7 bankruptcy to those who can’t pay their debts. It does this by deducting specific monthly expenses from your “current monthly income” (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly “disposable income.”

What is the point of the means test?

If the debtor fails the means test, the debtor can only apply for Chapter 13 bankruptcy. The purpose of the means test is to see that if the debtor is abusing the bankruptcy system by filing Chapter 7 bankruptcy cases even though they could afford to pay at least some of their debts.

What is considered income for bankruptcy means test?

Section 101(10A) of the Bankruptcy Code. This may include income and payments from some unexpected sources. As expected, all income from your employer is included—all gross wages or salary, as well as any tips, overtime, shift differentials, and commissions, WITHOUT subtracting any tax or other deductions.

Does Chapter 7 means test use gross or net income?

When determining whether you qualify for Chapter 7 bankruptcy, the means test compares your average gross monthly income for the six-month period before filing to the median income of similar households in your state. You’ll complete the rest of the means test and subtract allowed expenses from your gross income.

Can you file bankruptcy if you make too much money?

If you earn a high amount of income but are struggling to repay a substantial amount of unsecured debt, you might believe that your income disqualifies you from being able to file for bankruptcy. Can you make too much money to file for bankruptcy? The answer to this question is generally no.

Do I pass the means test?

The means test will factor in the drop in income. Conversely, if you recently got a new job and are making more money, that increase will be considered as well. If you’re below the median income, you’ve passed the means test and can file for Chapter 7 bankruptcy.

What do you need to know about the bankruptcy means test?

A bankruptcy means test determines whether your income exceeds a certain amount. This test is required to show that you’re eligible for Chapter 7 bankruptcy based on your state’s income standards. The Chapter 7 bankruptcy means test may seem confusing at first, but it’s easier to understand if you break it down.

Do you need to complete the means test to file for Chapter 7?

You do not need to complete the rest of the means test. You can file for Chapter 7. Do You Have Enough Disposable Income to Repay Some Debts? For those whose household income exceeds the state median, the means test computations become more complicated.

What kind of income can you deduct on the bankruptcy means test?

If the income is from wages, use the gross amount. If you don’t pass the first portion of the means test, you’ll be able to deduct your income tax—and other expenses—when completing the second form.

What do you need to know about Chapter 7 bankruptcy?

If you’ve decided to file for Chapter 7 bankruptcy, you should be prepared to pass a “means test.” A bankruptcy means test determines whether your income exceeds a certain amount. This test is required to show that you’re eligible for Chapter 7 bankruptcy based on your state’s income standards.