What is the Means Test in Bankruptcy?


Understanding the Means Test in Bankruptcy

When someone is facing a financial crisis and has decided to pursue a bankruptcy, one of the first decisions to make is which type of bankruptcy case to file. Many individuals wish to file a Chapter 7 bankruptcy case and pursue a liquidation bankruptcy. However, in order to qualify to file for a Chapter 7 case, the filer must pass the Means Test.

What Is the Means Test?

The purpose of the Means Test is to determine whether the filer qualifies to proceed with a Chapter 7 bankruptcy case. The test calculates the filer’s average income by looking at the last six months of income to determine if the income is above or below the average income for the average same size household where the filer lives. If the filer’s income is below the median income established for the district, he or she will automatically qualify for Chapter 7 bankruptcy under the Means Test.

If the filer’s income is above the median level, it does not automatically mean that the person cannot qualify. If the person’s income level is above-median, he or she may still qualify if that person can show that he or she has unusually high expenses in categories for which deductions are allowed. The allowed deduction for expenses include taxes, health insurance, auto payments, out-of-pocket medical expenses, and charitable contributions. If the filer’s expenses in these areas are high enough, he or she may be able to qualify for Chapter 7.

If the filer does not pass the Means Test, all hope is not lost. The filer can still qualify to file for Chapter 13. A Chapter 13 case is longer than a Chapter 7 case and requires the debtor to repay some or all of their debts over a 3 to 5 year time period, but it is better than the alternative of not being able to file for bankruptcy at all.

Means Test Exemptions

In addition, if the filer is a disabled veteran and has incurred the debt mostly during his or her time of active duty or during a homeland defense activity, the person may be completely exempt from the means test.

How is Median Income Determined in Texas?

The median income included in the Means Test is the filer’s average household income taken by averaging the previous six calendar months. The test calculates the average monthly income and then multiplies that number by 12 to calculate the person’s average annual income.

Certain information must be collected by the filer to calculate the income properly, including the filer’s monthly income and business expenses. Income includes essentially all sources of income, including business income, rental income, any dividends received, pensions and retirement plans paid to the filer, or money paid by others for household expenses. It also includes unemployment income.

What are allowed as expenses is determined by national standards, as well as Texas and local averages from the Census Bureau and the Internal Revenue Service. Actual expenses are obligations that the person is legally required to pay and expenses that are necessary for his or her health and welfare.

After all expenses are collected, they are subtracted from the income to determine the amount of income under Bankruptcy Code that the person would have available to pay unsecured creditors if he or she were to do a Chapter 13 filing.

One factor that should be kept in mind is just because the filer qualifies under a Chapter 7 case does not mean that it is the best option for him or her. Ultimately, it depends on the goals the filer wishes to achieve by filing the case.

If a filer is behind on their mortgage or car payments but wants to return those assets, it may be more advisable to pursue a Chapter 13 case. If the person’s debts are mostly unsecured, consumer debts, a Chapter 7 case may be best. A bankruptcy attorney will be able to advise the person on the best route for him or her.


An experienced Texas bankruptcy lawyer can help you through the means test process and can help address any concerns you have about the bankruptcy process. Call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you.

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