Who Is Exempt From Taking the Bankruptcy Means Test?

Most debtors must complete and pass the bankruptcy means test when filing for Chapter 7 bankruptcy. However, if you're ineligible because your income is high, you can avoid the test if you fall within an exception:

• your obligations are primarily "nonconsumer" or business debts
• you’re a disabled veteran and incurred most debt while on active duty, or
• you’re a military reservist, or member of the National Guard called to active duty before filing your case.

You can review the requirements on the official Statement of Exemption from Presumption of Abuse Under §707(b)(2) bankruptcy form.

Business Debts and the Chapter 7 Means Test Exemption

If most of your debts are related to your business—meaning that more than 50% are nonconsumer or business debts—you aren’t required to complete the Chapter 7 means test. Courts usually look to its purpose when determining whether a debt is consumer or nonconsumer, finding that nonconsumer debts arise when attempting to make a profit through a business venture. For example, the following are typically nonconsumer debts:

• car loans for business vehicles
• debts owed to business vendors and suppliers, and
• personal guarantees and other liabilities related to your business.

By contrast, consumer debts are incurred when financing personal, family, or household expenses or goods. Your apartment's rent and utility bills would be consumer expenses. Credit card charges for school supplies would also be consumer debts, but credit card charges for ribbons, vases, and tissue paper used in your floral business would be nonconsumer debt.

While many debts are easy to categorize, courts don’t always agree on what constitutes nonconsumer debts or how to calculate them. For instance, in some jurisdictions, tax debts for unpaid personal income taxes and student loan debts are business expenses related to making income. Also, you might count the total dollars or the number of obligations owed when determining whether most debts are consumer or nonconsumer.

A local bankruptcy attorney can explain your district's requirements and how bankruptcy can benefit a business or business owner.

Disabled Veterans and the Means Test Exemption

Disabled veterans who incur debts while on active duty or performing a homeland defense activity also don’t need to take 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:

• a disability rating of at least 30%, or
• a discharge from active duty because of a disability that occurred in the line of duty.

Reservists and National Guard Members and the Means Test Exemption

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.

Learn more about special rules for military members.

Being Exempt Doesn’t Guarantee Chapter 7 Qualification

Being eligible for a means test exemption is just one piece of the Chapter 7 qualification puzzle. It evaluates past income—not your present ability to pay creditors—and not having disposable income previously doesn’t mean you can’t pay creditors now.

To evaluate whether you can repay creditors, the court will compare Schedule I: Your Income and Schedule J: Your Debt. These two forms give the court a picture of your current monthly budget. If you have a significant amount of money remaining each month, the court will convert your case to Chapter 13 bankruptcy.

Consult a Bankruptcy Lawyer

If you're depending on a means test exemption to qualify for Chapter 7, consider verifying your status with an experienced bankruptcy attorney before filing—especially if you’re an active military member. You might have residency or domicile issues affecting your ability to file and protect property using bankruptcy exemptions.