Category Archives: Means Test

Bankruptcy Means Test Median Income Figures to Change on November 1

The United States Census Bureau recently published new statistics on the median income for individuals and families in each of the 50 states, plus the District of Columbia.  On November 1, 2014, the median income numbers that you must use when filing for bankruptcy will reflect the recent Census Bureau changes.

Why Does the State Median Income Matter in Bankruptcy?

The median income amounts for each state play an important role in bankruptcy – they determine whether a person filing for Chapter 7 bankruptcy has to pass the means test, or not.  The means test looks at your income and expenses and determines if you can repay a certain amount to your creditors. If you can, you cannot file for Chapter 7 bankruptcy and instead must file for Chapter 13. (Learn more about how the bankruptcy means test works.)

However, if your income is lower than the median income for your family size in your state, you don’t have to take the means test at all – you automatically qualify for Chapter 7 bankruptcy (assuming you meet other Chapter 7 eligibility criteria).

The Median Income Chart for Bankruptcy

On the U.S. Trustee’s website, you can find a chart listing the median incomes in each state for individuals, families of two, families of three,  and families of four (if your family is large than four, you simply add another $8,100 per person to the 4-person figure). Use the figure that corresponds to your family size.

If you file for bankruptcy on or after November 1, 2014, you will use the figures based on the new Census Bureau statistics.  You can find those numbers here:

Can Student Loans Help You Qualify for Chapter 7 Bankruptcy?

StudentLoans_iStockIf you plan to file for bankruptcy and have a bundle of student loan debt, those loans might make it easier for you to be eligible for Chapter 7 bankruptcy.  A Texas bankruptcy court recently ruled that because a bankruptcy debtor’s substantial dentistry school loans were not consumer debts, he did not have to take the means test in order to file for Chapter 7 bankruptcy.

What Is the Chapter 7 Means Test?

In order to qualify for Chapter 7 bankruptcy, you must pass the means test. The Chapter 7 means test looks at your income and expenses and determines if you have enough money left over to repay your unsecured creditors a portion of what you owe.

The means test often prevents high earners from filing for Chapter 7 bankruptcy. For many debtors, Chapter 7 is preferable to Chapter 13 because it allows you to discharge most or all of your debts, and you don’t have to make payments to a plan for three to five years. (Of course, there are many situations when Chapter 13 is better than Chapter 7.)

Exceptions to the Means Test Requirement

There are several situations when debtors do not have to pass the means test in order to file for Chapter 7 bankruptcy. One of those is referred to as the business debt exception:  If the majority of your debts are not consumer debts, you don’t have to take the means test.

Texas Court:  Dentist School Loans Are Not Consumer Debts

In In re De Cunae, No. 12-37424 (Bkcy S.D. TX 2013), Mr. De Cunae, a dentist, filed for bankruptcy. He lost his dental practice after a difficult divorce, was a single father, and couldn’t work for a time because of a stroke. At the time of his bankruptcy filing, he was once again working as a dentist on a contract basis. He filed for Chapter 7 bankruptcy.

Mr. De Cunae argued that he did not have to pass the means test (his income was high enough that if he did have to pass it, he would have failed) because his student loans from dentistry school were nonconsumer debts, and therefore the majority of his debts were nonconsumer.  The Texas bankruptcy judge agreed, ruling that the portion of his dentist school loans (about $200,000) that was used for tuition, books, and fees, was not a consumer debt. On the other hand, the portion of the student loans that he used for household expenses (about $30,000) was consumer debt.

Loans Incurred With an “Eye Towards Profit” Are Not Consumer Debts

Bankruptcy courts often struggle to distinguish consumer and nonconsumer debts. The Fifth Circuit Court of Appeals (Texas is in this circuit) has come up with the following definition: A nonconsumer debt is one that the debtor takes out “with an eye toward profit.”

The Texas bankruptcy court found that Mr. De Cunae did not attend dentist school, nor incur loans to attend dentist school, only for self-improvement or self-esteem, as the United States Trustee argued. Instead, the court found that Mr. Cunae’s intent was to enhance his ability to earn a future living.  To the court, that seemed to fit squarely within the profit motive category — and therefore they were not consumer debts. The portion of student loans that Mr. De Cunae used for household expenses, however, were consumer debts.

Because he could classify most of his dentist school student loans as nonconsumer debt, Mr. De Cunea’s  total nonconsumer debt load outweighed his consumer debt load – and he was allowed to file for Chapter 7 bankruptcy without passing the means test.

State Median Income Figures Change for Bankruptcy Means Test

On April 1, 2013, the state median income figures for the bankruptcy means test were adjusted.  In most states, the new figures make it slightly more easy for people to qualify for Chapter 7 bankruptcy.

What Is the Means Test?

In order to qualify for Chapter 7 bankruptcy, your income must be below the median income for your state or, you must pass the bankruptcy “means test” (a series of calculations based on your income and certain expenses designed to determine if you could realistically fund a Chapter 13 repayment plan.)

For details on how the means test works and the role it plays in both Chapter 7 and Chapter 13 bankruptcy, visit Nolo’s Bankrutpcy Means Test area.

State Median Income Figures Adjusted April 1, 2013

On April 1, 2013, new state median income figures were released. In most states, (California being a notable exception), the state median income increased — often by a thousand dollars or so per year.  This means that you can earn slightly more money, and still qualify for Chapter 7 bankruptcy without having to take the means test.

You can find the state median income figures here:


New Bankruptcy Means Test Figures Released

Starting on April 1, 2013, bankruptcy filers will be required to use new figures when completing means test calculations. Those new figures include updated median family income numbers for each state, and new national, regional, and local expense standards.

What Is the Means Test?

In Chapter 7 bankruptcy, you must go through a series of calculations to determine if you qualify for Chapter 7 bankruptcy. This is called the means test. The purpose of the means test is to see if you could fund a Chapter 13 repayment plan. If you can, you cannot file for Chapter 7. To learn more visit Nolo’s Chapter 7 Means Test topic area.

These figures play a role in Chapter 13 bankruptcy as well.  To learn how your family median income and expenses affect your Chapter 13 bankruptcy, visit Nolo’s Chapter 13 Repayment Plan topic area.

Median Family Income

The first step is to determine if your family income is more or less than the median family income in your state for a family of your size. Those median income figures just changed.  You can find the new numbers on the U.S. Trustee’s website at Choose Means Testing Information, pick the correct date range, choose “go” and then on the next screen, click on Median Family Income Based on State.

If your income is less than the median for your state, you can file for Chapter 7.  If it’s greater, you must go through more calculations to see if you can pass the means test.

Expense Standards and the Means Test 

In this next part of the test, you subtract certain allowed expenses from your income. If you have a certain amount left over, you will not pass the means test and you won’t be allowed to file for Chapter 7.

For some expenses, you can subtract the actual amount you spend. For others, you must use national, regional, or local figures. Those have also changed as of April 1, 2013. To find the new expenses standards, visit the U.S. Trustee’s website at, choose Means Testing Information, choose the correct date range, and then scroll down to find the various types of expenses (such as food and clothing , housing, health care, and transportation).