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The Dreaded MEANS TEST

“Means Test” – Chapter 7 Gatekeeper

Everyone whom files bankruptcy must complete the disclosure of current monthly income. In Chapter 7 cases, this is vitally important as you must “pass” 1 of the 2 tests of income to be allowed to file under Chapter 7 (you can also file even though you failed, but you will have to make a further filing that refutes the validity of the test under the debtor’s present circumstances).

In Chapter 13 cases, these tests are also done to mainly determine the minimum length of time for the repayment plan (plans range between 36 and 60 months). If you “pass” the tests – meaning that you are eligible to file under Chapter 7 – the Chapter 13 case can be as short as 36 months, but if you “fail” then the case must be 60 months.

The tests:

The first test is a calculation of monthly income by adding up all your household’s (gross) income for the last full 6 months and then multiplying by 2 to get the annualized amount. If the total is less than the median annual income for a household of your size in your state – you pass, and you don’t have to do part 2. If the household income number is greater than the median income, then proceed to part 2.

Part 2 is a calculation of disposable income. That is – how much you have left after deducting all your allowable expenses (i.e., payroll taxes, housing costs, food, car, clothes, etc.). If you have more than $200 left per month, then you have enough to do a Chapter 13 case and are not eligible for a Chapter 7 case.

Importantly, the calculation is based on HOUSEHOLD income. So, even if you are married and filing as an individually (spouse is not in the case and hence their credit report and score will be unaffected) the spouse’s income must still be included in the household income – so long as the spouse is actually living in the house.

Even if You Pass …. You Might Fail

The “means test” is merely an initial presumption that you qualify for filing under Chapter 7 – it isn’t the last and final authority. Just as a debtor can file under Chapter 7 when they “fail” the test and then demonstrates that the test does not apply to their present circumstance; the U.S. Trustee can also claim that the passing of the test is not a proper reflection the debtor’s current circumstance.

Normally we can get around a failed test (too much income or disposable income) by demonstrating that the income that was counted in the last 6 months is no longer available or is now much smaller. This happens, usually, when the person has become unemployed or has had a pay cut that will bring them below the median income amount if we just wait awhile (up to 6 months).

The U.S. Trustee attacks the “passing” mean tests result by arguing that the current monthly income (as reflected in Schedule I) and the current monthly expenses (as reflected in Schedule J) shows that there is enough money to justify the debtor repaying some of their debts in a Chapter 13 cases. If often happens when a person is unemployed or under-employed in the 6 months before filing the case (bringing the household income below the median amount) but has recently increased their income so as would make them “fail” the means test if the filing were delayed 6 months. Sometimes, the debtor’s income is barely below the median amount and their expenses (especially housing costs) are much lower than normal and leaves a large disposable income amount. Technically, anytime the disposable income amount exceeds $200 the trustee can seek to void the means test amount, but in my experience the Eastern District of Michigan is that trouble starts as the amount reaches $500.

The U.S. Trustee’s challenge to the presumption of eligibility for Chapter 7 should NOT come as a surprise to a good bankruptcy attorney. In every instance that the US Trustee has addressed this issue with me, I had told the clients that it was possible, if not likely. Often this issue can be resolve with the trustee with the providing of relevant information – sometimes it cannot. In cases where the U.S. Trustee actually challenges the means test result and the debtor’s eligibility for Chapter 7, the trustee files a Motion to Dismiss, and the issue is taken before the judge.

I wish I can say that the judges always side with the debtor but, I cannot. In fact, in those situations that the information given to the trustee is insufficient to convince them of the debtor’s qualification for Chapter 7, the judges almost universally side with the trustee. I don’t know what that says about the trustee or the judges, but when the trustee pushes it all the way to the judge – they are going to win.

But that isn’t the end. In those situations that the judge decides that the case cannot proceed as a Chapter 7, the judge always allows the debtor time to switch the case to a Chapter 13. In anticipation of the possible outcome, I have gone over the option with my clients well beforehand. Like filing the initial Chapter 7 case, the debtor has to make a decision if a Chapter 13 is the best way to deal with their debts. Not every situation is the same.

If you have question regarding Bankruptcy or any of the issues mentioned here (or others not mentioned), contact my office at 248-666-6004. You can always visit us at or write us at

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