Most debtors who want to file for Chapter 7 bankruptcy must complete and pass the bankruptcy means test. But those who earn a substantial income often don’t qualify. Fortunately, if you fall within one of a few exceptions, you’ll be exempt from taking the means test. Your income won’t affect your ability to file.
Here are the means test exemption requirements:
Take a look at the official Statement of Exemption from Presumption of Abuse Under §707(b)(2) or learn about more bankruptcy forms.
If the obligations you want to eliminate in your Chapter 7 bankruptcy are primarily non-consumer (business) debts, you’re not required to complete the means test. Typically, the business debt must be more than 50% of your total debt. Your specific court will decide how to calculate 50%. You might count the total dollars owed or the number of obligations (check with a local bankruptcy attorney). Find out more about how bankruptcy can help a business or business owner.
While there is no uniform rule on which obligations are considered non-consumer debts, courts typically look to the purpose of the debt when classifying it in bankruptcy. Non-consumer debts come about when you attempt to make a profit, such as through a business venture. But it can also include unexpected credit purchases or debt for you or your family.
By contrast, consumer debt is usually debt you meant to take out for personal, family, or household expenses or goods. Many courts have held the following debts to be non-consumer or business in nature:
However, because courts differ in their opinions of what constitutes a non-consumer debt, consider talking to a knowledgeable bankruptcy attorney in your area to learn the jurisdictional rules.
Disabled veterans whose debts were incurred while on active duty or performing a homeland defense activity are exempt from taking the means test to qualify for Chapter 7 bankruptcy. A disabled veteran will be eligible for this means test exception by meeting one of two factors:
If you are a military reservist or a National Guard member called to active duty after September 11, 2001, you could qualify for an exemption from the means test requirement. If you were on active duty or performing a homeland defense activity for at least 90 days, you are exempt from completing the means test during that time and for 540 days after that.
However, this is typically a temporary exclusion. When the 540-day exclusion period ends, you must complete the rest of the means test form within 14 days. See Bankruptcy Rules for Military Members for more information.
Qualifying for a means test exemption using the Statement of Exemption from Presumption of Abuse Under §707(b)(2) form is just one piece of the puzzle. Bankruptcy is a specialized area of law, and it’s a good idea to verify your status with an experienced bankruptcy attorney before filing.
For instance, filers can't have a lot of disposable income. The court will compare Schedule I: Your Income and Schedule J: Your Debt to qualify you for Chapter 7 bankruptcy. If you have a significant amount of money remaining each month, the court could convert your case to Chapter 13 bankruptcy.
Also, military members often run into issues regarding residency or domicile and protecting property with bankruptcy exemptions. You’ll want to check with an attorney to determine the state or federal exemption system available to you.
For more information, see The Means Test in Chapter 7 Bankruptcy.