Making Sense of Bankruptcy’s Means Test Skip to main content

You are here

Making Sense of Bankruptcy’s Means Test


The main thrust of 2005’s Bankruptcy Reform Act (unceremoniously known as “BARF”), is a bankruptcy deterrent called the “Means Test”—a formula for determining your ability to pay back your debts. Your inability to pass this test limits your options to filing a Chapter 13 bankruptcy plan, which still discharges your unsecured debt, but takes longer to complete.

With March 2010 figures yielding the highest number of reported Chapter 7 bankruptcies since 2005 (the year the “Means Test,” caused a dramatic reduction in bankruptcy cases), the efficacy of this apparent obstacle to Chapter 7 protections may be of particular interest to many considering personal bankruptcy. Just in time for your filing, here are few fast facts about the “Means Test,” and its actual effects (or lack thereof) on your ability to file for personal bankruptcy.

Means More of a Pain than Preventative
In actuality, unless you fail the so-called “Median Test”—a precursor to the Means Test—you probably won’t have to face the Means Test at all. If your income for the six months preceding your bankruptcy filing is less than the median income for your state, you’ve officially passed the so-called “median,” and thereby bypassed the Means Test altogether. Chances are, you probably are not even subject to the means test.

Dealing in Primarily Consumer Debts

According to the Bankruptcy Code, the Means Test applies only to debtors whose debts are “primarily consumer debts.” Based on the language of the Code, these specific debts include those incurred by an individual for personal, family, or household purchases; including mortgages, but not tax liabilities.

Even if you have a means test problem, an experienced bankruptcy attorney may be able to navigate the issues and get you passing with flying colors.
The justification for the Means Test is simple: it seeks to disallow people who earn more than the median income from simply discharging their debts through Chapter 7 if they can instead afford to be in a Chapter 13 payment plan. Applying these rules to your advantage is the job of your bankruptcy lawyer. In turn, your important role is to provide all of the necessary information your lawyer needs to make the appropriate calculations, including adding up forms of income like:

  • Wages, salary, fees, commission, and bonuses
  • Compensation for illnesses or injuries
  • Gifts and inheritances
  • Retirement Income (IRA, 401(k), etc.)
  • Tax Refunds
  • Scholarships
  • Insurance Payments
  • Prizes, Awards, Gifts
  • Inheritances

Where There’s a Means, There’s a Way
In addition, there are loopholes to the Means Test. For example, you can time your bankruptcy filing so that your average income is as low as possible. So, if you’ve lost your job, an attorney may suggest you delay your filing so that your income for the past six months falls below the “Median,” and thereby bypassing the Means Test.

Whether you’re interested in Chapter 7 or Chapter 13 bankruptcy, knowing a qualified bankruptcy attorney can also help you to conquer your creditors and face your financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future beyond our own “Great Recession.”  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-919-646-2654, or during the off hours, you can make your own appointment right online at Simply click on the yellow “FREE Consultation Now” button.

Debts Hurt! Got debt? Need help? Get started below!

What North Carolina County Do You Reside In?