What Chapter 7 filers should know about the means test

On Behalf of | Mar 4, 2024 | Chapter 7

If you want to get your financial slate wiped clean, filing for Chapter 7 bankruptcy is one way to do so. However, this option will not be available to all filers.

Specifically, those with higher incomes generally do not qualify for filing for bankruptcy under Chapter 7. They instead will likely have to file under Chapter 13. Filers have to pass what is called a “means” test to see if their income and debts qualify for Chapter 7.

Means tests compare filers’ incomes

The median family income here in Texas according to the 2019 census was $72,284. That figure is compared to your income for the past six months once it’s prorated for a year. If that sum, adjusted for household size, is less than the state median income, you have a green light to file for bankruptcy under Chapter 7.

The means test does not just look at your annual gross income. Below are some income sources that are also used when determining bankruptcy filing status:

  • Alimony
  • Bonuses
  • Child support
  • Commissions
  • Dividends
  • Financial contributions to the household from others
  • Interest
  • Net proceeds from businesses and farming
  • Overtime
  • Rental income
  • Royalties
  • Some pension or retirement income
  • Spousal income
  • Tips
  • Unemployment income

It is important to understand that a filer’s Social Security disability and/or retirement benefits are not included in the above calculations on the means test.

There can be exceptions

In some cases, a filer with a higher income may still be able to use Chapter 7 if they can show that their disposable income is insufficient to cover their outstanding debts. These determinations can be complex to compute yet can save you significant time and money getting your debts discharged by the bankruptcy court.