The Chapter 7 means test, explained

The Chapter 7 means test is the screen in 11 U.S.C. §707(b) that asks whether a debtor whose debts are primarily consumer debts has enough disposable income to fund a meaningful repayment plan. If it says yes, the case carries a presumption of abuse, and the debtor must rebut it, convert, or face dismissal. The test is mechanical — it does not read the schedules.

It runs in two steps. Official Form 122A-1 computes current monthly income (CMI) and compares the annualized figure to the median family income for the debtor’s state and household size. At or below median the case stops there. Above median, Form 122A-2 subtracts standardized allowances, certain actual expenses, and contractual debt payments to reach monthly disposable income — which is then multiplied by 60.

Step one: current monthly income

Current monthly income is a defined term. Under §101(10A) it is the average monthly income the debtor received from all sources during the six full calendar months ending on the last day of the month before the filing month. Two consequences follow. The window has nothing to do with the current paycheck — a client laid off three weeks ago still carries six months of full wages. And the filing date sets the window, so filing on the 2nd rather than the 28th of the prior month averages a different set of months. Where a high month is about to roll off the back, timing is a legitimate and often decisive planning question.

• Gross wages, salary, tips, bonuses, overtime, and commissions, before payroll deductions.
• Net income from a business, profession, or farm, and net rental income.
• Interest, dividends, royalties, pension and retirement income, and support the debtor receives.
• Unemployment compensation, which the form isolates on its own line because its status under the Social Security Act is unsettled.
• Regular contributions anyone else makes toward household expenses of the debtor or the debtor’s dependents.

Excluded are benefits received under the Social Security Act — retirement, SSDI, and SSI — and payments to victims of war crimes and terrorism. The exclusion runs one direction only: those benefits stay out of CMI but belong on Schedule I, where the trustee will see them.

The marital adjustment

A married debtor filing alone who lives with a non-filing spouse reports that spouse’s income in full. The marital adjustment then subtracts the portion not regularly contributed to household expenses of the debtor or the debtor’s dependents — the spouse’s own student loan, separate credit cards, support for a child from a prior relationship. Two points trip firms up: the adjustment is taken on Form 122A-2 rather than 122A-1, so it does nothing for the median comparison, and it must be itemized by category, because a lump sum invites a request for the spouse’s pay records.

The median income comparison

Form 122A-1 annualizes CMI and compares it to the median family income for the debtor’s state and household size. Those figures derive from Census data republished by the U.S. Trustee Program, which also publishes the expense standards used on Form 122A-2. They change, and the table that governs is the one in effect on the filing date — pull it from the U.S. Trustee Program rather than trusting a figure your software cached.

Household size is the other half of the comparison, and the Code does not define it. Districts and trustees variously count everyone under the roof, count only tax dependents, or apportion by economic contribution — and one person either way can move a case across the line.

Step two: deductions on Form 122A-2

Above-median debtors deduct expenses, but not the ones on Schedule J. The form is a hybrid: some categories are fixed allowances from IRS collection standards regardless of actual spending, others are actual amounts, and a final block converts debt obligations into monthly figures.

• National Standards — one household-size allowance for food, clothing, household supplies, and personal care, plus a per-person out-of-pocket health care allowance that differs under and over 65.
• Local Standards for housing and utilities — an operating allowance plus a mortgage or rent allowance, reduced by the average monthly payment on debt secured by the home.
• Local Standards for transportation — an operating allowance by region and vehicle count, plus an ownership allowance per vehicle reduced by the average loan or lease payment.
• Other necessary expenses at actual amounts: payroll taxes and involuntary deductions, term life insurance on the debtor’s own life, court-ordered payments, childcare, required education, health care above the standard, and telecommunication beyond basic service.
• Statutory add-ons under §707(b)(2)(A)(ii): health and disability insurance and HSA contributions, care of an elderly or disabled family member, home energy above the standard, capped education costs for children under 18, up to 5 percent extra for food and clothing, and continued charitable contributions.
• Debt payments: contractual secured payments due in the 60 months after filing divided by 60, arrearage cures divided by 60, priority claims divided by 60, and the district’s Chapter 13 administrative multiplier where applicable.

The subtraction built into the housing and vehicle standards is where the form goes wrong most often: those allowances are reduced by the secured payment because the same payment is deducted again in the debt block. Leaving both at full value inflates the deduction column in a way no reviewer will miss.

The presumption and how it is rebutted

Sixty months of disposable income is measured against two dollar thresholds in §707(b)(2)(A)(i), both adjusted for inflation every three years under §104. Below the lower threshold, no presumption arises; above the upper one, it arises regardless of how much unsecured debt exists. Between them, it depends on whether that figure would pay 25 percent or more of the debtor’s nonpriority unsecured claims. Verify the amounts in effect on the filing date.

A presumption is not a dismissal. Section 707(b)(2)(B) permits rebuttal on a showing of special circumstances — the statute names a serious medical condition and a call to active duty — that justify additional expenses or an income adjustment for which there is no reasonable alternative. The debtor must itemize each one, document it, and attest under oath; the presumption falls only if those adjustments bring the 60-month figure below the threshold. Passing is likewise not the end: §707(b)(3) still permits dismissal for bad faith or on the totality of the circumstances.

Where the input data comes from

The calculation is only as reliable as six months of pay records, business profit-and-loss statements, benefit letters, and rental ledgers, collected at intake rather than reconstructed the week before filing. Our document checklist covers what to request and when.

All of those are transcription failures rather than legal ones, which is why petition software will not flag them: the totals are right and only the inputs are wrong. See petition data entry errors.

Cases the means test does not reach

Section 707(b) applies only where the debtor’s debts are primarily consumer debts, and §707(b)(2)(D) excludes qualifying disabled veterans and reservists called to active duty; all three threshold questions are answered on Form 122A-1Supp. Chapter 13 cases use the 122C series instead, where the calculation sets the plan’s disposable income commitment rather than screening eligibility — see Chapter 7 vs. Chapter 13.

This guide is general information for law-firm staff, not legal advice for any particular case.