How Does the Chapter 7 Means Test Work?

What Is the Means Test for Chapter 7?

Chapter 7 bankruptcy is an opportunity for qualified people to get their debts discharged, or completely wiped away. However, not everyone is eligible to file for Chapter 7 relief.

Individuals whose current monthly income is higher than the state average for the same household size must pass the means test in order to file under Chapter 7. The means test essentially determines whether or not you have the “means” to pay off your debts, helping judges know whether or not a debtor earns enough income that they should NOT be granted Chapter 7 relief.

As such, the means test compares your current monthly income for the past 6 months to the average income in your state for your particular household size. You will come across “122A Forms,” which consist of Bankruptcy Form 122A-1, Official Form 122A-1Supp, and Official Form 122A-2. These forms will require you to enter and calculate information such as your income and expenses, your current monthly income, and more. However, debtors do not always have to fill out each and every form. Read below to understand why:

Official Form 122A–1, Chapter 7 Statement of Your Current Monthly Income: ALL individuals filing for Chapter 7 bankruptcy must fill out this form, which determines the debtor’s current monthly income and compares it to see whether their income is more than the median income for households of the same size in their state. If the income is not above the median, there is no presumption of abuse and such individual will NOT have to fill out the second form, 122A-1Supp, because they are eligible to file for Chapter 7 relief.

Official Form 122A–1Supp, Statement of Exemption from Presumption of Abuse Under § 707(b)(2): This form determines whether you can “steer clear” from the assumption of abuse because your debts do NOT consist of mostly consumer debts or because you provided a certain military or homeland defense service. If one of these exemptions applies, you should file Form 122A-1Supp and fill out Part 3 of Form 122A-1 to verify.

If you qualify for an exemption, you only have to complete the verification on Form 122A-1. If the exemptions do not apply to you, however, you should complete all sections of form 122A-1 and file it alone, without the supplemental form.

If your Form 122A-1 reveals that your income is higher than the state average, you will take the means test.

Official Form 122-2, Chapter 7 Means Test Calculation: The calculations completed on this form are referred to as the “means test.” As you can see, individuals whose average monthly income is higher than the state median and do not qualify for an exemption described above are REQUIRED to take the means test. Your calculations will reduce your income by living expenses and payment of certain debts, producing an amount that can be used to pay other debts. If the amount is high enough, you may be under the presumption of abuse, which means you have enough income that excludes you from getting relief under chapter 7. One way to bypass this assumption is to show special circumstances that resulted in increased expenses or a reduced income.

On the other hand, if your calculation produces an amount that is too low to pay your debts, you can obtain relief under Chapter 7.

Filing for Chapter 7 Bankruptcy?

If you are considering filing for Chapter 7 bankruptcy, we strongly encourage you to retain an attorney first and foremost. The laws, paperwork, and procedures involved in these filings are confusing and complex. One mistake on your 122A forms could result in a denial for Chapter 7 relief altogether, for instance. You cannot afford to handle your Chapter 7 bankruptcy filing alone. Instead, we invite you to get in touch with our law firm to learn how our lawyer can best serve you.

With over a decade of experience, Attorney Seni Popat is your go-to source of legal representation, counsel, and advocacy. Contact us at (718) 340-3385 to schedule a consultation!