How does the Chapter 7 means test work?
The means test was created by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) to prevent high-income filers from using Chapter 7. Step 1: calculate your average monthly income over the past 6 months and compare to your state's median. If below the median, you pass — no further means testing. If above, Step 2 applies: deduct allowed expenses (IRS standards + actual secured debt payments) to determine disposable income. If disposable income is too high, you are presumed to be abusing Chapter 7 and may be required to file Chapter 13 instead.
What income is included in the means test?
The means test uses your 'current monthly income' (CMI) — the average monthly income from all sources received in the 6 calendar months before the bankruptcy filing date. This includes wages, salary, tips, rental income, interest, dividends, pension, and regular contributions from others. It excludes Social Security benefits, payments to victims of war crimes, and certain other exempt sources. Multiply the 6-month average by 2 to get the annualized figure for comparison to state medians.
What is Chapter 13 bankruptcy?
Chapter 13 is a 'reorganization' bankruptcy that allows you to keep all your assets (including property you would lose in Chapter 7) by committing to a 3–5 year repayment plan. You pay your disposable income to a trustee who distributes it to creditors. Chapter 13 is often used to: save a home from foreclosure (by catching up arrears through the plan), keep non-exempt assets, pay off non-dischargeable debts (student loans under hardship, back taxes), or help filers who don't qualify for Chapter 7.