Bankruptcy Means Test

Bankruptcy means test summary:

• People who earn more than the median income for their area and want to file for Chapter 7 bankruptcy protection must complete a bankruptcy means test. 

• If you earn less than the median income for families in your state, you don’t need to complete a bankruptcy means test. You’re already eligible for Chapter 7 bankruptcy.

• A bankruptcy means test compares your income to your expenses and debts to determine whether you’d be able to afford a Chapter 13 bankruptcy payment plan or not.

We can’t advise you on your specific situation. For personalized advice, consult with a qualified bankruptcy attorney licensed to practice in your state.

Bankruptcy Means Test Definition and Meaning

A bankruptcy means test is a way that bankruptcy courts can evaluate whether you can file for Chapter 7 bankruptcy, which many people prefer over Chapter 13 bankruptcy. Not everyone needs to complete a bankruptcy means test. But if you are required to do a bankruptcy means test, you’ll compare your income, expenses, and debts on Form 122A-2.

Comprehensive Breakdown of Bankruptcy Means Test

People struggling with debt can get relief from the courts by filing either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy is faster, cheaper, and more likely to provide the relief many people are looking for. But Chapter 7 is meant for people who truly can’t afford to repay any amount of their debt. 

If you’re not eligible for Chapter 7 bankruptcy, you’re still eligible for Chapter 13 bankruptcy. Chapter 13 takes a few years, with higher costs and more chances for things to go awry along the way. That’s why many people prefer Chapter 7 bankruptcy. If you don’t automatically qualify for Chapter 7 bankruptcy, a bankruptcy means test is how you can learn whether you're eligible. 

First: If you earn less than the median income for your particular state and family size, you’re automatically eligible for Chapter 7 bankruptcy. You don’t need to do a bankruptcy means test. You’ll figure this out based on your income over the past six months on Form 122A-1, “Chapter 7 Statement of Your Current Monthly Income.”

Second: If you do earn above the median income, the form will tell you to fill out another sheet, Form 122A-2, “Chapter 7 Means Test Calculation.” This form takes a more in-depth look at your income, expenses, and types of debt. If you meet certain conditions, you’ll pass the bankruptcy means test and could proceed with your Chapter 7 bankruptcy case. If you don’t pass the bankruptcy means test, you could file for a Chapter 13 bankruptcy instead. A bankruptcy attorney is the best person to help you fill out the forms.