Bankruptcy Means Test: Eligibility Standards and Calculations

The bankruptcy means test is a statutory screening mechanism embedded in federal law that determines whether an individual debtor qualifies to file under Chapter 7 or must instead proceed under Chapter 13. Enacted through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the test applies income and expense formulas drawn from IRS standards and U.S. Census Bureau data to measure a debtor's ability to repay obligations. Understanding the test's structure, calculation logic, and classification outcomes is essential for anyone analyzing consumer bankruptcy eligibility under Title 11 of the United States Code.

• Definition and scope
• Core mechanics or structure
• Causal relationships or drivers
• Classification boundaries
• Tradeoffs and tensions
• Common misconceptions
• Checklist or steps (non-advisory)
• Reference table or matrix
• References

Definition and scope

The means test is codified at 11 U.S.C. § 707(b)(2), which authorizes a bankruptcy court to dismiss a Chapter 7 case filed by an individual with primarily consumer debts if granting relief would constitute "abuse." The test operationalizes "abuse" through arithmetic: it compares a debtor's current monthly income (CMI) — a defined term under 11 U.S.C. § 101(10A) — against the applicable state median income, and when CMI exceeds that median, applies a second phase of allowed-expense deductions to determine disposable income.

The scope is limited to individual debtors with primarily consumer debts. Business debtors, municipalities filing under Chapter 9, and entities filing under Chapter 11 or Chapter 12 are exempt from the means test. Disabled veterans whose indebtedness arose primarily during active duty or homeland defense activity are also excluded under 11 U.S.C. § 707(b)(2)(D).

The official form used to complete the calculation is Official Form 122A-1 (Chapter 7 Statement of Your Current Monthly Income) and, when applicable, Official Form 122A-2 (Chapter 7 Means Test Calculation), both maintained by the Administrative Office of the U.S. Courts.

Core mechanics or structure

The means test proceeds in two sequential phases.

Phase 1 — Median Income Comparison

Current monthly income is calculated as the average monthly income from all sources received by the debtor during the 6-calendar-month period ending on the last day of the calendar month before the filing date (11 U.S.C. § 101(10A)). This figure is annualized by multiplying by 12 and then compared to the applicable state median family income for a household of the same size. The U.S. Trustee Program publishes these median income figures, which are updated periodically based on U.S. Census Bureau data (U.S. Trustee Program Means Testing Information).

If the debtor's annualized CMI falls at or below the applicable state median, the debtor passes Phase 1 and no further calculation is required — the presumption of abuse does not arise.

Phase 2 — Disposable Income Calculation

Debtors whose annualized CMI exceeds the applicable state median must complete Phase 2. This phase deducts standardized and actual expense allowances from CMI to arrive at monthly disposable income (MDI). Allowable deductions fall into three categories:

1. IRS National Standards — Fixed amounts for food, clothing, housekeeping, personal care, and miscellaneous expenses based on household size, as published by the IRS Collection Financial Standards (IRS National Standards).
2. IRS Local Standards — Housing and utility expenses (housing/utilities) and transportation expenses derived from IRS tables calibrated by county and metropolitan statistical area.
3. Additional actual expenses — Health care, mandatory payroll deductions, care for elderly or disabled household members, secured debt payments, and priority debt payments may be deducted at actual amounts subject to specific statutory caps and conditions.

If MDI multiplied by 60 equals or exceeds $14,825, or if MDI multiplied by 60 equals 25% or more of the debtor's nonpriority unsecured claims (with a floor of $8,175), a presumption of abuse arises under 11 U.S.C. § 707(b)(2)(A)(i). These threshold figures are subject to periodic adjustment under 11 U.S.C. § 104; the figures cited reflect the amounts published by the Administrative Office of the U.S. Courts in the most recent adjustment cycle.

Causal relationships or drivers

BAPCPA's enactment was directly caused by congressional findings that Chapter 7 filings had grown from roughly 300,000 annually in 1980 to approximately 1.6 million in 2003, with legislative sponsors arguing that a substantial subset of filers possessed sufficient income to repay a meaningful portion of their debts (Senate Report 109-31, BAPCPA 2005). The means test was the primary mechanical response to that concern.

The IRS expense standards were chosen because they already existed as collection tools used by the IRS to evaluate taxpayer repayment capacity. Their incorporation into the bankruptcy means test linked consumer insolvency law to a tax-administration framework not designed for bankruptcy purposes — a design decision that has driven significant litigation over whether debtors must use actual expenses or IRS standards when actual expenses are lower.

State median income figures shift the test's pass/fail threshold by geography. A debtor in Mississippi faces a lower median threshold than a debtor in Maryland; as of figures published in 2023 by the U.S. Trustee Program, applicable median annual income for a single-person household varied by more than $20,000 across states, meaning identical financial circumstances produce different eligibility outcomes depending on the debtor's state of domicile.

Classification boundaries

The means test produces three distinct classification outcomes:

Special circumstances rebuttal under 11 U.S.C. § 707(b)(2)(B) allows a debtor to document additional expenses or income adjustments — such as serious medical conditions or a call to active military duty — that reduce MDI below the abuse threshold. The debtor must itemize each special circumstance with documentation and a detailed explanation.

Cases where CMI exceeds the median but no presumption of abuse arises remain subject to dismissal under § 707(b)(3), which allows the U.S. Trustee, bankruptcy administrator, or a judge acting sua sponte to seek dismissal based on the totality of the debtor's financial circumstances — a broader, facts-and-circumstances inquiry not confined to the mechanical formula.

The interaction between the means test and the automatic stay is indirect: a debtor who cannot pass the means test and converts to or files under Chapter 13 still obtains the automatic stay, but must propose a repayment plan governed by the disposable income calculation under 11 U.S.C. § 1325(b), which uses a related but distinct version of the means test formula.

Tradeoffs and tensions

Standardized vs. actual expenses. The Supreme Court addressed the tension between IRS standard deductions and actual expenses in Ransom v. FIA Card Services, N.A., 562 U.S. 61 (2011), holding that debtors cannot claim an IRS ownership cost deduction for a vehicle they own free and clear. The Court interpreted the deduction language narrowly, prioritizing creditor recovery over debtor flexibility. This line of litigation reflects the fundamental tension between a formula designed for uniformity and the reality of individual financial circumstances.

CMI as a backward-looking metric. The 6-month lookback for CMI can produce outcomes disconnected from a debtor's actual financial condition at the time of filing. A debtor who lost employment two months before filing but earned significant income in the prior four months may have a CMI that overstates present capacity. Conversely, a debtor who received a temporary windfall shortly before filing may appear income-elevated despite returning to lower income post-filing.

Geographic disparity. The state median income threshold creates structurally unequal access to Chapter 7 by state. This has been noted in academic analysis of BAPCPA's outcomes — particularly by researchers at the American Bankruptcy Institute Law Review — as an unintended consequence of using Census-derived averages as a bright-line legal threshold.

Interaction with above-median Chapter 13 plans. For debtors who fail the Chapter 7 means test and proceed under Chapter 13, the applicable commitment period is fixed at 60 months under 11 U.S.C. § 1325(b)(4)(A)(ii), compared to 36 months for below-median debtors. This extended commitment period is a direct structural consequence of the means test's above-median classification.

Common misconceptions

Misconception: The means test applies to all bankruptcy chapters.
The means test under § 707(b)(2) applies exclusively to individual consumer debtors filing under Chapter 7. Chapter 13 uses a related but separate disposable income calculation. Chapter 11 individual debtors face a projection of disposable income under § 1129(a)(15) that does not use the IRS standard deduction structure. Chapter 12 has its own disposable income framework.

Misconception: Passing the means test guarantees a Chapter 7 discharge.
Passing the means test eliminates the presumption of abuse based on income, but it does not prevent dismissal on other grounds — including bad faith under § 707(b)(3), failure to complete the required credit counseling within 180 days before filing, or the presence of nondischargeable debts that make filing strategically ineffective for the debtor.

Misconception: Social Security income is included in CMI.
Payments from the Social Security Act — including retirement, disability (SSDI), and SSI payments — are explicitly excluded from the definition of CMI under 11 U.S.C. § 101(10A)(B). This exclusion is categorical and extends to all amounts paid under the Social Security Act, as confirmed in Sorrell v. Baldwin and related circuit court decisions interpreting the exclusion's scope.

Misconception: The means test is calculated once and cannot change.
The income lookback period is fixed (6 months pre-filing), but the IRS expense standards and state median income figures against which it is measured are updated periodically by the U.S. Trustee Program and IRS. A case filed two months later than anticipated may face a different median threshold or different IRS allowances, altering the outcome without any change in the debtor's actual finances.

Checklist or steps (non-advisory)

The following steps reflect the structural sequence of the means test calculation as defined by 11 U.S.C. § 707(b)(2) and Official Forms 122A-1 and 122A-2:

1. Identify all income sources received during the 6 full calendar months preceding the filing month, excluding Social Security Act payments and payments to victims of war crimes or crimes against humanity.
2. Calculate monthly averages for each income source and sum them to produce the debtor's Current Monthly Income (CMI) per 11 U.S.C. § 101(10A).
3. Annualize CMI by multiplying the monthly figure by 12.
4. Identify the applicable state median income for a household of the same size from the U.S. Trustee Program's published means testing data tables.
5. Compare annualized CMI to state median — if at or below, complete only Official Form 122A-1; no presumption of abuse arises.
6. If CMI exceeds the median, proceed to Official Form 122A-2 and enter IRS National Standard deductions for the applicable household size.
7. Enter IRS Local Standard deductions for housing, utilities, and transportation applicable to the debtor's county or metropolitan area.
8. Enter actual expense deductions for health insurance, disability insurance, health savings accounts, care for a chronically ill or disabled family member, and other categories specified in § 707(b)(2)(A)(ii).
9. Enter secured debt payment deductions — average monthly payments on secured debts coming due during the 60 months post-filing, divided by 60.
10. Enter priority debt payment deductions — total priority claims divided by 60.
11. Calculate Monthly Disposable Income (MDI) by subtracting all allowed deductions from CMI.
12. Apply the presumption test: multiply MDI by 60 and compare against the $14,825 threshold and the 25%/$8,175 secondary threshold; record whether presumption of abuse arises.
13. Document any special circumstances if the debtor seeks to rebut a presumption of abuse under § 707(b)(2)(B).

Reference table or matrix

Means Test: Phase-by-Phase Classification Matrix

Chapter 7 vs. Chapter 13 Means Test Comparison

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References

• National Association of Home Builders (NAHB) — nahb.org
• U.S. Bureau of Labor Statistics, Occupational Outlook Handbook — bls.gov/ooh
• International Code Council (ICC) — iccsafe.org