How the Bankruptcy Means Test Determines Eligibility

The Gatekeeper Standing Between Debtors and a Fresh Start

When Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, credit card companies and banks had spent over $100 million lobbying for a single goal: making it harder to file Chapter 7 bankruptcy. The means test was their prize. Before BAPCPA, virtually any individual could file Chapter 7 and discharge most debts regardless of income. After BAPCPA, debtors must pass a two-part income and expense analysis to qualify. Those who fail are presumed to be abusing the bankruptcy system and are steered toward Chapter 13, where debts are repaid over three to five years instead of eliminated. In 2023, approximately 387,000 individuals filed Chapter 7 bankruptcy, with the means test filtering out an estimated 10% to 15% who would otherwise have qualified under pre-BAPCPA rules.

Step One: The Median Income Comparison

The means test begins with a simple comparison. The debtor's "current monthly income"—the average gross monthly income received during the six calendar months before filing—is annualized and compared to the median income for a household of the same size in the debtor's state.

If the debtor's annualized income falls below the state median, the means test is passed. Full stop. The debtor qualifies for Chapter 7 without further analysis. Roughly 75% of Chapter 7 filers pass at this first step because most people filing bankruptcy have experienced job loss, medical catastrophe, or divorce that reduced their income well below median levels.

Step Two: The Expense Analysis

Debtors with above-median income proceed to Form 122A-2, the detailed means test calculation. This form subtracts allowable expenses from current monthly income to determine "disposable income." If disposable income is too high, the debtor fails the test.

The expense categories follow IRS Collection Financial Standards, not the debtor's actual spending:

• National standards: Fixed allowances for food, clothing, personal care, and miscellaneous expenses based on household size
• Local standards: Housing and utility allowances varying by county, and transportation allowances varying by region
• Actual expenses: Health insurance premiums, taxes, mandatory payroll deductions, childcare, education for employment, and court-ordered payments
• Secured debt payments: Monthly amounts needed to maintain mortgages, car loans, and other secured debts
• Priority debt payments: Amounts needed to repay tax debts, child support, and other priority claims over 60 months

The Presumption of Abuse Calculation

After subtracting all allowable expenses, the remaining "disposable income" determines whether a presumption of abuse arises.

The thresholds are periodically adjusted. When abuse is presumed, the debtor can attempt to rebut the presumption by demonstrating special circumstances—serious medical conditions, military service obligations, or other documented situations that justify additional expenses not captured in standard allowances.

What Counts as "Current Monthly Income"

The six-month lookback period creates both opportunities and traps. Income includes wages, business income, rental income, pension payments, unemployment benefits, and contributions from non-filing household members. Social Security benefits are excluded, which can be significant for retired debtors.

• A worker laid off three months before filing may have an artificially high CMI because the calculation includes months of full employment
• Timing the filing date to exclude high-income months can dramatically affect the means test outcome
• One-time income (severance payments, tax refunds, insurance settlements) during the lookback period inflates the calculation
• Bankruptcy attorneys routinely advise clients on optimal filing timing based on income history

Chapter 13: The Alternative Path

Debtors who fail the means test are not denied bankruptcy relief entirely. They are redirected to Chapter 13, which requires a repayment plan lasting three to five years. Above-median-income debtors must commit to a five-year plan. Below-median debtors may qualify for a three-year plan.

Chapter 13 has its own advantages. It allows debtors to keep property they would lose in Chapter 7 (such as a home in foreclosure, where arrears can be cured over the plan period). Debts owed to co-signers are handled without exposing the co-signer to collection. Certain debts that survive Chapter 7 (such as property settlement obligations from divorce) can be discharged in Chapter 13.

Criticisms and Unintended Consequences

The means test achieved its primary goal—reducing Chapter 7 filings. But the consequences extended further than supporters anticipated.

• Bankruptcy filing costs increased significantly. Attorney fees for Chapter 7 rose from an average of $712 in 2005 to over $1,500 by 2023, largely due to means test compliance complexity
• Pro se (self-represented) filers face a form that the Government Accountability Office described as requiring "an accounting degree to complete"
• The test uses six-month-old income data, which may not reflect the debtor's current financial situation at the time of filing
• IRS expense allowances may not reflect actual living costs in high-cost areas where local standards lag reality

Strategic Considerations for Filers

The means test is mechanical, not subjective. Experienced bankruptcy attorneys treat it as a math problem with known variables and legitimate planning opportunities. Paying down secured debt before filing reduces the disposable income calculation. Increasing legitimate expenses—catching up on medical care, making necessary vehicle repairs—during the lookback period affects the income side. These strategies are legal and well-established in bankruptcy practice, though they require careful documentation to withstand trustee scrutiny.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Individual circumstances vary significantly. Consult a qualified attorney for personalized guidance.