Chapter 7 Bankruptcy Eligibility: The Means Test Explained

The Two-Step Means Test

Chapter 7 bankruptcy gives eligible filers a fast discharge of most unsecured debt, usually within three to six months, in exchange for surrendering non-exempt assets. Eligibility turns on the means test, which runs in two steps. First, your household income for the six months before filing is annualized and compared to the median income for your household size in your state. If you fall below the median, you generally satisfy the means test automatically and can proceed with Chapter 7.

If your income is above the median, you move to the second step: a detailed calculation that subtracts allowed living expenses (based on IRS and local standards) and certain required debt payments from your income to arrive at monthly disposable income. If that disposable income is high enough over 60 months to repay a meaningful share of your unsecured debt, the law presumes a Chapter 7 filing is abusive, and you will usually be directed to Chapter 13 instead.

Prior Filings and Debt Type

Timing bars can block a discharge even when your income qualifies. You cannot receive a Chapter 7 discharge if you already received one in a Chapter 7 case filed within the past eight years, or in a Chapter 13 case filed within the past six years (subject to exceptions for how much you repaid). If you are inside those windows, Chapter 13 may still be available, so the bar is rarely the end of the road.

The nature of your debt also matters. The means test applies only to debtors whose debts are primarily consumer debts. If more than half of your total debt is business or other non-consumer debt, the means test may not apply, and Chapter 7 can be available regardless of income. This is a technical, fact-specific determination that a bankruptcy attorney should confirm, because misclassifying debt can derail a filing.

Exemptions, Counselling, and What Gets Discharged

Passing the means test does not mean you keep everything. In Chapter 7, a trustee can sell non-exempt assets to pay creditors, so exemptions — which vary by state, with some states allowing the federal set — determine what you protect. Home equity, a vehicle, tools of the trade, and retirement accounts are treated differently everywhere, so mapping your assets to your available exemptions is essential before filing.

Every filer must complete an approved credit-counselling course before filing and a debtor-education course before discharge. Chapter 7 wipes out most credit-card debt, medical bills, and personal loans, but it does not discharge most taxes, student loans, domestic-support obligations, or debts arising from fraud. Because median tables, exemptions, and expense standards change, treat this tool as a first screen and confirm the details with a bankruptcy attorney.

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