Chapter 7 Bankruptcy Income Limits: Do You Qualify?

Chapter 7 bankruptcy doesn’t have one fixed income limit. Instead, courts use the means test to determine your eligibility. You compare your six-month average income to your state’s median income for your household size. If you earn less, you automatically qualify. If you earn more, you can still qualify by proving your necessary expenses leave no disposable income. These limits ensure Chapter 7 serves people who genuinely can’t repay their debts.

Understanding Chapter 7 Income Requirements

No single income threshold applies to every Chapter 7 filer. The court relies on the means test to evaluate your eligibility. The means test involves two distinct steps.

First, you’ll compare your income to your state’s median income for your household size. Your income equals the average of your past six months of earnings.

If your income falls below your state’s median, you automatically pass. You don’t need to complete step two. You likely qualify to file Chapter 7 bankruptcy.

About 90% of bankruptcy filers qualify based on income alone. They never complete the second part of the means test.

Check Your State’s Income Threshold

The chart below shows current state median income limits by household size. Find your state and household size. Compare your average monthly income from the past six months to the listed median monthly income.

Median Monthly Income by State and Household Size

Households larger than four people should consult detailed state-specific charts. Speak with a bankruptcy attorney for free to get accurate figures for your situation.

Why Chapter 7 Has Income Limits

Chapter 7 eliminates many debts without requiring repayment. Because it offers such broad relief, Congress added income limits in 2005. These limits ensure Chapter 7 serves people who genuinely can’t afford debt payments.

The concept is straightforward. If you earn enough for monthly debt payments, Chapter 13 bankruptcy might fit better. Chapter 13 includes a repayment plan. The means test helps courts decide who qualifies for Chapter 7.

How the Bankruptcy Means Test Works

The means test determines your Chapter 7 eligibility. It examines your income and living expenses. The test reveals whether you can afford debt repayment.

The test includes two parts:

Part 1: Income Comparison

You compare your average monthly income from the past six months to your state’s median. Your income must match your household size category. If your income falls below the median, you pass. You can file Chapter 7.

The six-month lookback period uses the six full calendar months before filing. Courts use this period to calculate your average monthly income.

Part 2: Expense and Disposable Income Review

If your income exceeds the median, the test examines your monthly expenses. After deducting allowed expenses, courts check for leftover money. Leftover money is called disposable income. Courts determine if disposable income could repay debts.

Most Chapter 7 filers pass based on income alone. They never complete part two.

Required Forms for the Means Test

Filing Chapter 7 requires several forms showing your financial situation. The means test represents one component of your bankruptcy paperwork.

You’ll need two official forms for the means test:

• Official Bankruptcy Form 122A-1: Statement of Your Current Monthly Income. You calculate your six-month average income here.
• Official Bankruptcy Form 122A-2: Means Test Calculation form. If your income exceeds the state median, you list allowable expenses here.

Additional required forms include:

• Forms 106I and 106J: Your current monthly income and expenses, including housing, food, and transportation.
• Form 107: Statement of Financial Affairs providing your complete financial history.
• Asset and liability schedules: Everything you own and owe.
• Payment evidence: Pay stubs or income proof from the 60 days before filing.
• Credit counseling certificate: Proof you completed required counseling within 180 days before filing.

What If You Don’t Pass?

If the means test shows your income exceeds allowed expenses, you might not qualify for Chapter 7. You may have better alternatives available.

If your recent income was unusually high or expenses unusually low, timing matters. You can file Chapter 7 later when your financial situation normalizes.

If you expect continued disposable income, explore Chapter 13 or other debt relief options. Debt management plans or debt settlement might work better for your situation.

Calculating Income for Bankruptcy

Courts examine your average gross income over six full months before filing. If you file in July, courts use January through June income.

Gross income is your total earnings before taxes and deductions.

Include all applicable income sources when calculating gross income:

• Wages
• Tips
• Alimony
• Child support
• Side gig earnings
• Rental income

Social Security benefits don’t count toward your means test total. SSI and SSDI appear elsewhere in bankruptcy forms. If Social Security provides your only household income, you automatically pass the Chapter 7 means test.

When Your Income Exceeds the Median

If your income tops the median, the process becomes more complex. You’ll complete the second part of the means test. Part two factors in your living expenses to determine continued eligibility.

You must show that necessary costs leave insufficient money for debt repayment. Necessary costs include housing, food, and healthcare. If calculations show disposable income remains after expenses, you may need Chapter 13 instead. Chapter 13 includes a three to five-year repayment plan.

Income Limit Exceptions

Yes, exceptions exist. If most debt is business-related, you might avoid the means test. Active-duty service members and disabled veterans may also qualify for exemptions.

You’ll file a special form instead: Official Form 122A-1Supp (Statement of Exemption from Presumption of Abuse). Income limits apply differently in these cases.

Business Debt Exemption

If over 50% of your debt qualifies as non-consumer debt, you’re automatically exempt from means test calculations. Non-consumer debt means business debt incurred with profit motives.

If you’re unsure about your debt classification, consult a bankruptcy attorney. Speak with a bankruptcy attorney for free to understand your debt types.

Service Member and Veteran Exemptions

Disabled veterans, reservists on active duty, and National Guard members receive special protections. They don’t count service-connected compensation in the means test. Congress expanded this protection through the 2019 HAVEN Act.

Qualifying individuals file a Statement of Exemption from Presumption of Abuse. The form notifies courts you’re exempt from income limits.

Allowable Expenses in the Means Test

If your income exceeds your state median, you’ll complete part two. Part two examines monthly expenses. Courts determine if you qualify based on remaining disposable income after covering basic needs.

Four main expense types can be deducted:

1. Specific living expenses based on IRS-established national standards (not actual spending)
2. Payments on secured debts like home or car loans and priority debts like taxes or child support
3. Actual monthly expenses for certain items
4. Chapter 13 administrative costs (even when filing Chapter 7)

If insufficient funds remain after deductions to pay meaningful amounts toward unsecured debts, you may still qualify. Courts typically require at least 25% repayment over five years.

IRS Guideline-Based Living Expenses

Some categories use national and local IRS standards. These are preset amounts, not your actual spending. Categories include:

• Food, clothing, household supplies, and personal care items
• Housing and utilities
• Out-of-pocket healthcare expenses
• Transportation

Secured and Priority Debt Payments

If you’re keeping property like a home or car, monthly loan payments can usually be deducted. Car loans and home loans are secured debts. The collateral secures the loan.

You can also deduct payments on non-dischargeable debts. Recent income taxes or child support qualify. These are priority debts.

Actual Monthly Expenses

Some necessary costs can be deducted based on actual monthly spending. Expenses must be reasonable, necessary, and documented. Examples include:

• Childcare or babysitting costs
• Health insurance premiums
• Court-ordered child or spousal support
• Mandatory retirement contributions
• Job-required education costs
• Medical expenses exceeding the standard allowance

You may deduct more than IRS standards if actual expenses are higher and justified.

Chapter 13 Administrative Costs

Since the means test compares your situation to Chapter 13 repayment plans, you can deduct estimated Chapter 13 administrative costs. You deduct these even when filing Chapter 7.

Next Steps After the Means Test

If you pass the means test and choose Chapter 7, you’ll complete remaining bankruptcy forms. Before filing, you must take a required credit counseling course.

After filing your case, you’ll attend a short meeting of creditors (341 meeting). You’ll meet with a bankruptcy trustee. The trustee asks questions about your finances and ensures fairness.

You’ll also complete a second required class. The financial management course helps you move forward after bankruptcy.

Most people receive their bankruptcy discharge within months of filing. The discharge officially eliminates eligible debts. Eliminated debts include credit card debt, medical bills, personal loans, and payday loans.