Means Test

Not everyone can file Chapter 7 — the type of bankruptcy that wipes out most debts in a few months. To make sure it's only available to people who genuinely can't afford to repay their debts, Congress created the means test. It's basically a math formula comparing your income to your state's median income.

Step one: compare your average monthly income over the past 6 months to your state's median income for your household size. If you're below the median, you automatically pass the means test and can file Chapter 7. If you're above the median, you move to step two.

Step two: you subtract certain allowed expenses (housing, food, transportation, childcare, etc.) from your income using IRS national and local standards. If what's left over — called your "disposable income" — is below a threshold, you still pass. If it's above the threshold, you may be required to file Chapter 13 instead, which involves a 3–5 year repayment plan.

The means test is the gateway to Chapter 7. If you pass, you can potentially eliminate most of your unsecured debt — credit cards, medical bills, personal loans — in as little as 4–6 months. If you don't pass, it doesn't mean bankruptcy is off the table; it just means Chapter 13 may be the right path, where you repay some or all of your debts over time under court protection.

Many people who earn above-median income still pass the means test once allowed expenses are deducted. Things like rent, car payments on a necessary vehicle, healthcare, and childcare can significantly reduce your calculated disposable income. It's worth doing the full calculation before assuming you don't qualify.