Means Test FAQ
What is the means test, and do I need to worry about it?

Means Test FAQ

The bankruptcy means test was added to US bankruptcy law in 2005 as part of the credt-card-industry sponsored bankruptcy law to weed out so-called "bankruptcy-abusers" -- hence the language about a "presumption of abuse" (just to make you feel extra ashamed for exercising your right to bankruptcy!).
 

Updated: 2021-04-30 by

Your questions about the bankruptcy means test, answered.

 

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What Is the Means Test?

What is the means test?

The 2005 bankruptcy law (BAPCPA) imposed a "means test" on who can file for Chapter 7 bankruptcy.

You might think this test prevents you from filing. But, chances are, you're wrong. Most people considering bankruptcy have no trouble passing the means test. Indeed, some lawyers think more people qualify for Chapter 7 under this test than under the old law, where judges had no fixed formula.

Use this calculator find out where you stand.

The Formula

The law now uses a standard mathematical formula to determine whether you can file for Chapter 7 -- or, to put it in legal terms, whether filing for Chapter 7 would be an 'abuse' of the bankruptcy system. (Those who fail the means test, are left with a Chapter 13 repayment plan as their only bankruptcy option.)

The means test is actually a two-part test and you only need to pass one of them to qualify for Chapter 7.

Test 1. "Median Income" (Form 22A-1)
This is a very simple test that compares your average household income for the past six calendar months to the median income for your state, If your income is below the median, you qualify for Chapter 7. If it is above the median, you must pass Test 2.

Test 2. "Disposable Income" (Form 22A-2)
This test deducts expenses from your income to determine how much you can pay your unsecured creditors over the next five years:

  • If you can pay at least $13,650 ($227.50 per month), you can't file for Chapter 7.
  • If you can pay at least $8,175 ( about $136.25 per month)
    • and that is at least 25% of what you currently owe your unsecured creditors, you can't file for Chapter 7.
  • If your disposable income is less than $136.25 per month, you can file for Chapter 7.

Certain deductions are standard allowances based on the number of vehicles you operate, the number of people in your household, and the cost of living in .

In addition, to these standard deductions, you can also deduct the full amount of certain actual expenses such as mortgage and vehicle loan payments.

 


 

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Do I Need to Complete the Means Test?

Do I need to complete the means test?

If you are filing for Chapter 13 bankruptcy, you do not need to complete the means test. However, you do need to complete a form almost identical to it — and that will determine how much you must pay in a Chapter 13 plan.

If you want to file for Chapter 7 bankruptcy, you must at least complete Form 22A-1 to figure your "current monthly income" (CMI), which is based on your average income over the past six calendar months. That number will determine whether you must complete the rest of the form.

If your CMI is below the median income for for a household your size, then you do not need to complete Form 22A-2.

If your CMI is higher than the median for for a household your size, you must complete Form 22A-2 to compute your monthly "disposable" income (that is, income minus expenses). The result of that computation will determine whether you are eligible for Chapter 7 bankruptcy.


 

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Other Noteworthy Calculators on the Web

Other Noteworthy Calculators on the Web

MIT has a Living Wage Calculator for Kern County.

NerdWallet has some handy calculators to help you start budgeting

 


 

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How is "Household Size" Defined in the Bankruptcy Median Income Test?

Household Size: When is a family of 3 not a family of 3?

The issue of household size can be tricky in cases of shared custody, children who live at college part of the year, or non-custodial children living in the household.

There will undoubtedly be litigation on this subject. The official form seems to suggest that the issue is whether the person is part of the household and is a dependent. (That is, you can't include a roommate who is not your dependent in your household size, yet you may have to include the portion of their income that contributes to the overall income of the household. See the help topic on that subject. This can be an issue for same-sex couples who cannot legally marry.)

RELATED INFO:

In April 2010, the United States Trustee's office issued a PDF of their official position on legal issues surrounding each line of the Chapter 7 means test form 22A. Keep in mind that the Trustee tends to protect creditor interests, so a debtor's bankruptcy attorney may not agree with every one of these positions. That said, if you can easily pass the means test under the trustee's relatively stingy interpretation of the rules, all the better.

The U.S. Trustee's Office's official statement (released April 2010) on how to fill out form 22A takes the the following position on how to fill out the means test:

OLD FORM Line 14, (New form 22A-1, Line 13) Applicable median family income.

  • "Applicable state" is state of residence at filing.
  • If married and two different households, residence is where most family members reside.
  • If no plurality of family members are in any one state, use state of spouse with highest income.
  • "Household size" is the debtor, debtor's spouse, and any dependents that the debtor could claim under IRS dependency tests. The USTP uses the same IRS test for the definition of both"household" and "family." IRS Publication 501 explains the IRS tests for "dependent."
  • The USTP departs from the IRS dependent test (as does the IRS when it determines family size for collection purposes) in cases justifying "reasonable exceptions" (e.g. a long standing economic unit of unmarried individuals and their children). However, if an individual is counted as a family member for median income purposes, that individual's income should be included as income on Part II of Form 22A .

OLD Form Line 8 (New Form 22A-1 Line 4) of the means test:

  • Includes payments made monthly, quarterly, or annually.
  • Includes payments regardless of written agreement with contributor.
  • Includes payments from roommate, partner, parent, or relative, regardless of whether living with debtor.
  • Includes payments made directly to creditors on behalf of debtor, e.g., rent, car, or insurance.
  • Does not include payments from non-filing spouse (which are already included as income in Column B).

 

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Contributions of Roommates or Domestic Partners to Household Income

Contributions of roommates or domestic partners to household income

At least one site on the web has addressed this issue. King's Bankruptcy Media (a lawyer's website) states what appears to be the correct rule: that, if a roommate or domestic partner is contributing income to the household, then that portion of the roommate's income must be included in the overall amount of 'household income' on line 4 of Form 22A-1, where it asks for "contributions to household income."

RELATED INFO:

The U.S. Trustee's Office's official statement (released April 2010) on how to fill out form 22A takes the the following position on how to fill out the means test:

Old Form Line 14 (New Form 22A-1 Line 13, Applicable median family income.

  • "Applicable state" is state of residence at filing.
  • If married and two different households, residence is where most family members reside.
  • If no plurality of family members are in any one state, use state of spouse with highest income.
  • "Household size" is the debtor, debtor's spouse, and any dependents that the debtor could claim under IRS dependency tests. The USTP uses the same IRS test for the definition of both"household" and "family." IRS Publication 501 explains the IRS tests for "dependent."
  • The USTP departs from the IRS dependent test (as does the IRS when it determines family size for collection purposes) in cases justifying "reasonable exceptions" (e.g. a long standing economic unit of unmarried individuals and their children). However, if an individual is counted as a family member for median income purposes, that individual's income should be included as income on Part II of Form 22A .

Old Form Line 8 (New Form 22A-1, Line 4), Any amounts paid by another person or entity, on a regular basis, for the household expenses of the debtor or the debtor's dependents, including child or spousal support.

  • Includes payments made monthly, quarterly, or annually.
  • Includes payments regardless of written agreement with contributor.
  • Includes payments from roommate, partner, parent, or relative, regardless of whether living with debtor.
  • Includes payments made directly to creditors on behalf of debtor, e.g., rent, car, or insurance.
  • Does not include payments from non-filing spouse (which are already included as income in Column B).

 


 

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Median Income Test Notes

Median Income Test Explained

The bankruptcy law determines your income by looking at your household income during the six full calendar months before you file for bankruptcy.

Effect of the six-month income rule

If your income declined suddenly within the past six months and has not yet increased, waiting until after the first of the month to file will lower your monthly income figure used for the means test. That is, even if you don't qualify this month, you may qualify after the first of next month, or the month after that, if your income remains below the average monthly income for your state.

Effect of the number of people in your household

You may have noticed already that changing the number of persons in the household dramatically affects the median income figure. You can't include a roommate who is not your dependent in your household size, yet you may have to include the portion of their income that contributes to the overall income of the household. See the help topic on that subject.

If your six-month household income was more than 's median income for a household of your size, don't fret. Fill out Form B122A-2 (Expense Deductions).

You probably still qualify for Chapter 7, but you'll need to answer more questions to find out. Most people qualify once all factors are taken into account.

Info is not advice

This site points to numerous books, articles and services that can help you figure out whether it makes sense for you to file for bankruptcy.

However, this website cannot answer whether you, specifically, should or should not file for bankruptcy.

If you're still not sure whether bankruptcy is right for you, you may want to seek credit counseling from a reputable agency or consult a lawyer.

 

* If your six-month household income was less than the median for your state, consider this:

Complete Form B122A-1 of the calculator to make sure that you've properly computed your income. Although you are not legally required to complete Form B122A-2, the "expenses" part of the means test, it will give you a sense of how a judge or trustee might view your ability to pay.

Some judges look to your ability to pay as part of the "totality of the circumstances" test (Section 707(b)(3)), and will bar you from Chapter 7 bankruptcy, whether your income is above or below the median.

Bottom line: Whatever your income, if the calculator indicates that you have money left over after expenses, study the list of allowed expenses in the means test form and fill in any that apply.

Another thing to worry about: Some judges may rely on different required forms as guides in looking at the "totality of the circumstances" under 707(b)(3): Specifically Form B 106, Schedules I and J. These forms also deal with income and expenses but can yield a different "disposable income" result than the means test form (Form B122A) because different things are allowed and excluded on each form. Most notably, the means test income formula (and this calculator) excludes income from Social Security benefits, while Schedule I does not. Whether your Social Security income can render you ineligible for Chapter 7 is an unsettled area of law. At least one court has ruled that, by enacting the means test as it did, Congress intended that Social Security income be excluded when determining Chapter 7 eligibility; however, it still must be reported on Schedule I.

If you have significant income from Social Security benefits, be aware of this issue.


 

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If I Pass the Means Test, Can I still be barred from filing bankruptcy?

If I Pass the Means Test, Can I still be barred from filing bankruptcy?

Yes, you can still be barred from filing Chapter 7 bankruptcy.

Passing the means test removes one barrier: it means that you are not "presumed" to be "abusing" the bankruptcy system under 707(b)(2).It is an essential first step, and for most people, that is that. They are clear to file.

However, in some cases, a bankruptcy judge may rule that case should be dismissed because to the "totality of the circumstances" under707(b)(3).

Example 1: In Iowa, a judge ruled that a debtor was abusing the system because in the year preceding his bankruptcy, he received substantial sums of money from various sources and spent it all on unnecessary indulgences, rather than pay down his debt. In re James, 345 B.R. 664 (Bkrtcy.N.D.Iowa 2006).

And, while the means test income analysis looks backward, a court can use 707(b)(3) to look forward.

Example 2: In another example, a Northern California court denied a debtor the right to file Chapter 7 because the debtor was about to have a substantial increase in income. In re Pak, 343 B.R. 239 (Bkrtcy.N.D.Cal. 2006).

 


 

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If I fail the Means Test, can a judge allow me to file anyway?

If I fail the Means Test, can a judge allow me to file anyway?

Yes, a judge can allow you to file for Chapter 7 bankruptcy even if you fail the means test, but only you are able able to show "special circumstances."

Some examples of possible "special circumstances" are job loss or pay cut, a serious medical condition, or unusually high child care expenses.  You must be able to produce proof of your expenses and that your expenses are reasonable -- and that you have no reasonable alternative.


 

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What are "priority claims"?

What are "priority claims"?

This is a technical term used in bankruptcy law, and refers to what debts must be paid before all other debts (after administrative expenses).

A list of the most common priority claims can be found on Form 10 (Proof of Claim). These include

  • past due debts for child and spousal support,
  • most unpaid taxes, and wages,
  • salaries or commissions you owe to employees and
  • contributions you owe to an employee benefit fund.

The full definition of the nine types of priority debt is found in section 507(a) of the bankruptcy code.

(a)The following expenses and claims have priority in the following order:
(1)First:
(A)
Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or such child’s parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law.
(B)
Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition, are assigned by a spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law.
(C)
If a trustee is appointed or elected under section 701, 702, 703, 1104, 1202, or 1302, the administrative expenses of the trustee allowed under paragraphs (1)(A), (2), and (6) of section 503(b) shall be paid before payment of claims under subparagraphs (A) and (B), to the extent that the trustee administers assets that are otherwise available for the payment of such claims.
(2)
Second, administrative expenses allowed under section 503(b) of this title, unsecured claims of any Federal reserve bank related to loans made through programs or facilities authorized under section 13(3) of the Federal Reserve Act (12 U.S.C. 343),[1] and any fees and charges assessed against the estate under chapter 123 of title 28.
(3)
Third, unsecured claims allowed under section 502(f) of this title.
(4)Fourth, allowed unsecured claims, but only to the extent of $10,000 [2] for each individual or corporation, as the case may be, earned within 180 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first, for—
(A)
wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual; or
(B)
sales commissions earned by an individual or by a corporation with only 1 employee, acting as an independent contractor in the sale of goods or services for the debtor in the ordinary course of the debtor’s business if, and only if, during the 12 months preceding that date, at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor.
(5)Fifth, allowed unsecured claims for contributions to an employee benefit plan—
(A)
arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first; but only
(B)for each such plan, to the extent of—
(i)
the number of employees covered by each such plan multiplied by $10,000; 2 less
(ii)
the aggregate amount paid to such employees under paragraph (4) of this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.
(6)Sixth, allowed unsecured claims of persons—
(A)
engaged in the production or raising of grain, as defined in section 557(b) of this title, against a debtor who owns or operates a grain storage facility, as defined in section 557(b) of this title, for grain or the proceeds of grain, or
(B)
engaged as a United States fisherman against a debtor who has acquired fish or fish produce from a fisherman through a sale or conversion, and who is engaged in operating a fish produce storage or processing facility—
but only to the extent of $4,000 2 for each such individual.
(7)
Seventh, allowed unsecured claims of individuals, to the extent of $1,800 2 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.
(8)Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for—
(A)a tax on or measured by income or gross receipts for a taxable year ending on or before the date of the filing of the petition—
(i)
for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;
(ii)assessed within 240 days before the date of the filing of the petition, exclusive of—
(I)
any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days; and
(II)
any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days; or
(iii)
other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case;
(B)
a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition;
(C)
a tax required to be collected or withheld and for which the debtor is liable in whatever capacity;
(D)
an employment tax on a wage, salary, or commission of a kind specified in paragraph (4) of this subsection earned from the debtor before the date of the filing of the petition, whether or not actually paid before such date, for which a return is last due, under applicable law or under any extension, after three years before the date of the filing of the petition;
(E)an excise tax on—
(i)
a transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition; or
(ii)
if a return is not required, a transaction occurring during the three years immediately preceding the date of the filing of the petition;
(F)a customs duty arising out of the importation of merchandise—
(i)
entered for consumption within one year before the date of the filing of the petition;
(ii)
covered by an entry liquidated or reliquidated within one year before the date of the filing of the petition; or
(iii)
entered for consumption within four years before the date of the filing of the petition but unliquidated on such date, if the Secretary of the Treasury certifies that failure to liquidate such entry was due to an investigation pending on such date into assessment of antidumping or countervailing duties or fraud, or if information needed for the proper appraisement or classification of such merchandise was not available to the appropriate customs officer before such date; or
(G)
a penalty related to a claim of a kind specified in this paragraph and in compensation for actual pecuniary loss.
An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.
(9)
Ninth, allowed unsecured claims based upon any commitment by the debtor to a Federal depository institutions regulatory agency (or predecessor to such agency) to maintain the capital of an insured depository institution.
(10)
Tenth, allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.
(b)
If the trustee, under section 362363, or 364 of this title, provides adequate protection of the interest of a holder of a claim secured by a lien on property of the debtor and if, notwithstanding such protection, such creditor has a claim allowable under subsection (a)(2) of this section arising from the stay of action against such property under section 362 of this title, from the use, sale, or lease of such property under section 363 of this title, or from the granting of a lien under section 364(d) of this title, then such creditor’s claim under such subsection shall have priority over every other claim allowable under such subsection.
(c)
For the purpose of subsection (a) of this section, a claim of a governmental unit arising from an erroneous refund or credit of a tax has the same priority as a claim for the tax to which such refund or credit relates.
(d)
An entity that is subrogated to the rights of a holder of a claim of a kind specified in subsection (a)(1), (a)(4), (a)(5), (a)(6), (a)(7), (a)(8), or (a)(9) of this section is not subrogated to the right of the holder of such claim to priority under such subsection.
 

 

 

Automatically apply the Kern County expense standards, and California income standards to your means test calculation.

Find where to file if you live in Kern County.

Automatically apply the Kern County expense standards, and California income standards to your means test calculation.

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