June 20, 2019

The Bankruptcy Means Test: Don’t Make Assumptions

fist clenching dollarsVirtually everyone who is considering bankruptcy goes online to get information regarding the bankruptcy process.  These folks will almost certainly encounter the “means test.” This is a part of the bankruptcy law that makes it harder to file a Chapter 7, liquidating bankruptcy.

The means test purportedly exists to stop people from abusing the bankruptcy law by filing Chapter 7 cases when they can make partial payments in a Chapter 13 bankruptcy cases.

You can make a lot of money and still qualify for a Chapter 7 bankruptcy filing

Unfortunately, some folks look at the words that define the means test and make the assumption that they earn too much money.  They assume that because their income level appears to exceed the allowable amount for Chapter 7 filing that they will be forced to file a Chapter 13 case and make payments to their bankruptcy trustee for five years.

Some of these folks will simply decide that they cannot file and will be relegated to the harassment that led them to consider bankruptcy.

The fact of the matter is that most people can pass the means test if a proper calculation of their expenses is made.  The calculation does not take a Philadelphia lawyer but is does take a knowledgeable one.  A knowledgeable lawyer knows that hidden away in the verbiage of the statute containing the means test are a number of expenses that will increase the allowable monthly expenses of the means test.

A rough idea of how the means test is calculated

Begin with income. As a general proposition, income is calculated as all income whether taxable or not received during the six full months prior to bankruptcy filing doubled.  Social security payments are not included.

This is compared to the median income of a family of the same size in North Carolina. If the means test income is greater than the median income, the means test income is then compared to the “allowable monthly expenses.” As an example, the median income of a family of four in North Carolina is $64,983.

Calculate and compare expenses. The calculation of the allowable monthly expenses begins with determining the National Standards and Local Standards allowed by the IRS for living expenses for persons paying back taxes over a period of time.  Section 707 of the Bankruptcy Code has borrowed these from the Internal Revenue Code.

Unfortunately, the amounts allowed for living expenses under the National and Local Standards are so low that living on this kind of allowance is next to impossible.  However, all is not lost.  The reason is that there are a number of expenses that most people will have that are expenses that can be added to increase the expenses allowed under the National and Local Standards.

There is a list of these expenses below.  Examine it carefully.  No one will have all of these; however, everyone will have some.

It has been my experience that virtually everyone will underestimate the amount of these expenses.  It has been my policy to have clients study the list and carefully calculate the amount of each applicable expense.  As a result, I have had very few clients run afoul of the means test.


  •  Auto balance due divided by 60
  •  Burglar alarm or other necessary personal or home security expenses
  •  Business expense
  • Expenses related to self employment income
  • Non-reimbursed business expenses related to employment
  •  Charitable contributions made on a regular basis
  •  Child care
  •  Chronically ill, elder or disabled member of household expense
  •  Court ordered payments; e.g. child support, alimony or restitution
  •  Education school expense for a child under 18, limit $137.50 monthly
  •  Education for a physically or mentally challenged child
  •  Food or clothing above the IRS standard not to exceed five percent
  •  Home energy cost above the IRS standard to the extent an prove necessary
  •  Home insurance
  • Home taxes
  •  Insurance; e.g. health, disability or health savings account
  •  Involuntary deductions from income; e.g. insurance such as health, life, retirement, other
  •  Medical expenses that are not reimbursed
  •  Telecommunications expenses other than basic phone or cell necessary for health and welfare of self or dependent
  •  Professional education expenses related to your employment (unreimbursed)
  •  Professional licensing fees (unreimbursed)
  •  Professional organization expenses related to your employment (unreimbursed)
  •  Taxes, federal and state, paid monthly either by deduction or estimate
  •  Uniform expenses related to your employment (unreimbursed)