What is the Bankruptcy Means Test?

Chapter 7 bankruptcy is the most common type of bankruptcy for consumers, as it is the quickest and usually most efficient way to get rid of many of your debts. However, the law doesn’t let just anyone file for Chapter 7 bankruptcy, as you must qualify based on your income and wages. If you have “too much” income, the law believes you should be able to pay your debts, and you can’t seek a discharge through the Chapter 7 process. 

How can the court tell if you have too much income? You have to pass something called the “means test” before you can begin a Chapter 7 case. This test measures your income against other households in your state, and if your income is below the median amount for the size of your household, you qualify to file. 

Income Levels are Different in Each State

There isn’t one income level that applies to every case in the U.S. This is because your income is only compared to others in your state – not across the country. The Department of Justice (DOJ) reports the median income for different household sizes in different states, and the following are some examples of numbers for 2021

Michigan:

• 1 earner = $53,815
• 2 earners = $67,015
• 3 earners = $80,465
• 4 people = $99,179

Hawaii (the highest earners):

• 1 earner = $72,396
• 2 earners = $84,224
• 3 earners = $96,021
• 4 earners = $119,681

Mississippi (the lowest earners):

• 1 earner = $45,317
• 2 earners = $54,584
• 3 earners = $58,459
• 4 earners = $71,528

How the Means Test Works

Many people make mistakes on the means test and assume they don’t qualify to file a Chapter 7 case. This is because it can be more complicated than you might think. A bankruptcy lawyer can help you realize whether you pass the means test or not. 

First, your lawyer will look at all types of income you have. This can include your basic wages, overtime, bonuses, commissions, benefits, and more. They calculate your average income for the six months prior to filing for your bankruptcy. If this amount is less than the median for your household size, you pass the means test and can move forward with your bankruptcy case. 

If not, the process isn’t over. Your attorney can compare your income to your expenses, which reduces your income. If your income minus your qualified expenses is below the median, you will qualify for a Chapter 7 case. 

Even if you don’t qualify for a Chapter 7 case, you still might qualify for a different type of bankruptcy. Never give up, and talk to a bankruptcy attorney about your options today. 

Contact a Michigan Bankruptcy Lawyer for Help

Bankruptcy attorney Karen E. Evangelista helps people in Michigan deal with financial stress and debts. If you need help with any type of bankruptcy case, please contact us to learn more. We help people complete the means test and with every part of the bankruptcy process.