The Bankruptcy Means Test: Do I Qualify for Bankruptcy?

image of Worried about bills?The bankruptcy “means test” is the method used to determine whether you are likely to succeed in filing a Chapter 7 bankruptcy case. Chapter 7 bankruptcy is usually preferred because it allows you to receive a “fresh start” without having to pay any money back to your creditors.

The first step in determining whether you are likely to succeed in filing a Chapter 7 bankruptcy case is to see whether your average monthly income (determined by averaging your income over the last six months) is more or less than the median income for a household of your size. If your income is less than the median income, then the means test won’t affect your ability to succeed in filing a Chapter 7 bankruptcy case. The table below shows Wisconsin’s median income figures for households of 1-4 people. Your household size is generally determined by how many family members live with you.

Household Size
1 earner – $51,116
2 people – $65,237
3 people – $70,319
4 people – $76,120

* The median income figures are current through 2/21/14, but they are adjusted slightly periodically.

If your income is more than the median income, that doesn’t mean you can’t file a Chapter 7 bankruptcy case. It just means you need to take the second stage of the “means test” which takes into account your monthly expenses for items such as food, clothing, housing, transportation, and mortgage and vehicle payments to determine whether you have enough income left over at the end of the month to repay some money to your creditors. Even people who have income that is well above the median income for their household size can still “pass” the Chapter 7 means test. “Passing” the means test if your income is above-median simply requires additional financial disclosures and calculations, all of which are performed before you file your bankruptcy case, leaving very little uncertainty as to whether you “pass” or “fail” the means test before you ever file your bankruptcy case.

In the event that you “fail” the means test because your income is too high, Chapter 13 may be a better option for you to get the protection you need from your creditors. In a Chapter 13 bankruptcy case, you must pay back some portion of your debts in a repayment plan that lasts anywhere from three to five years. The exact percentage required to be paid to creditors is different in each case and depends mostly on your income and expenses. The idea behind Chapter 13 is that it is designed to require that you repay no more than your budget shows you can afford to pay each month during the term of your Chapter 13 repayment plan. The portion of your debts (including credit cards, medical bills, and utility bills) that go unpaid in your Chapter 13 case are wiped out (“discharged”) at the end of the case. The amount of your monthly payments and the length of your repayment plan are calculations you work out with your bankruptcy attorney well before you file your bankruptcy case so that you know what to expect before you ever file your bankruptcy case.

It’s important to know that your income level is only one of several factors that affect whether a Chapter 7 or 13 bankruptcy case would best help you reach your goal of financial stability. Your decision as to whether to file a Chapter 7 or 13 bankruptcy case is a decision you should only make after consulting with a bankruptcy attorney.