The Chapter 7 Means Test is the mathematical formula that determines who can file Chapter 7 bankruptcy.
Who is eligible for Chapter 7 bankruptcy?
There are a number of eligibility criteria, some having nothing to do with income.
However, with regard to the Means Test, you are eligible for Chapter 7 bankruptcy if:
- Your gross average household income for the 6-months prior to the month in which you file your bankruptcy case is …
- Under the median average income for …
- A household of your household’s size …
- In the state in which you live.
So, depending on how many people live in your household, you will have a higher or lower average income.
As of January 2025, the average income numbers for households in Michigan with 1 to 4 people are:
| HH Size 1 | HH Size 2 | HH Size 3 | HH Size 4 |
| $62,161 | $76,158 | $95,969 | $117,799 |
Thus, if you live alone in Farmington Hills and earn $50,000 per year, you will likely “pass” the Means Test. You will be eligible for Chapter 7 bankruptcy.
However, it’s not as simple as that.
Let’s dig in.
How the Chapter 7 Means Test Actually Works
What do you actually earn for Means Test purposes?
It depends on the sources of your income. However, it can also depend upon when you choose to file for Chapter 7 bankruptcy.
Timing of Chapter 7 Filing
First, let’s look at the timing of your filing of the Chapter 7 bankruptcy case.
The Means Test averages the income earned over 6 months. This is the 6 months prior to the month in which you are planning to file.
Imagine you are planning on filing Chapter 7 in July of 2025. In this case, the Means Test will average the income earned for the months of January 2025, through June 2025. Not in that filing month of July 2025.
Whose income must you include, exactly?
All household members—regardless of whether they are jointly filing the bankruptcy with you or not. Even if your spouse is not filing jointly, you must include his or her income in your Means Test.
Therefore, if you work at McDonald’s but your spouse is the CEO of a huge company, you will not pass. This is true even though your income, alone, is likely well under the median average number.
However, not every other human being living under your roof is necessarily a “household member” for Means Test calculation purposes.
For example, a roommate with whom you merely split rent and other living expenses but who is not a spouse, significant other, or family member, is generally not a “household member” for purposes of the Means Test.
If you work at McDonalds but your roommate is, say, Bill Gates—Bill’s income will not capsize your Means Test result.
However, there are many less obvious examples either way.
Further, timing is everything.
Was income very “normal” over this particular 6-month period? Or did you receive a sizeable annual bonus check from your employer that may drastically inflate the average resulting from this time-period?
Only an experienced bankruptcy lawyer with a full understanding of local Bankruptcy Court judicial decisions regarding who is and who is not a “household member” will be able to advise you as to your particular household’s composition.
Only an experienced bankruptcy attorney will be able to properly recommend an ideal filing-timing that maximizes your odds of Means Test success.
Sources of Income and the Chapter 7 Means Test
This consideration is more straightforward.
Simply, all forms of income from any source other than Social Security benefits and certain other very specific governmental benefits are income for purposes of the Chapter 7 Means Test.
- Cash under the table wages are income for Means Test purposes.
- Property you receive in exchange for labor in lieu of cash is income for Means Test purposes.
- Michigan unemployment benefits are income for Means Test purposes.
- Rental income is income for Means Test purposes.
- If you own your own business and pay for your personal expenses from your business earnings and business bank account—that is income for Means Test purposes.
- Your SSI or SSD payment from the Federal government are NOT income for Means Test purposes.
Long story short, you cannot “argue” your way around the Means Test, nor can you hide or disguise a source of income to claim that it is not, somehow, income for Means Test purposes.
If it isn’t Social Security-derived, it’s generally safe to assume it must be calculated in the Means Test.
The Averaging of Household Income
All of that said, how is the household’s Means Test income actually calculated?
Your bankruptcy attorney will take from you all of the paystubs and other income documentation evidencing the gross (pre-tax, pre-deduction) income earned from all sources for each of those 6 months in question.
- That income will then be averaged.
- That average will then be multiplied by 12 (months) to arrive at what the Means Test thinks your annual household income is.
- That number is then compared to the median income in Michigan for a household of your size.
- If you are below that number, you “pass” the Means Test.
- If you are above that number, you may have “failed” the Means Test, and you may be required to file a Chapter 13 bankruptcy rather than a Chapter 7.
Maybe.
Over-Median Households and Means Test “Failure”
If you are over Michigan’s median for a household of your size, that is not actually an automatic Means Test failure.
In terms of the Means Test Official Form, what it means that you must proceed to complete Part 2 of the form, in which your actual household income is (in theory) more accurately calculated.
The Means Test “calculation” form is where you have the opportunity to deduct some of your gross income out of the income average to determine whether you truly “fail” the Means Test or not.
Some of the income deductions available are specifically personal to your actual household: actual taxes paid, actual child care costs, and others.
However, some of the income deductions are standardized.
They are not representative of what your household actually pays in reality.
They are standard deductions premised upon IRS Allowable Expenses for your particular geographic area and household size.
These standardized deductions include housing and utilities expenses.
Thus, you may be a household of 2 residing in a $20 million mansion that costs a lot to upkeep—but you’re still going to get the same standardized housing deduction as a family of 2 living much less ostentatiously in a typical ranch dwelling—or apartment.
Thus, even when all of the available deductions are applied by an experienced bankruptcy attorney, the end-result Means Test “income” may or may not closely resemble your real-world monthly budget.
If, after all deductions are applied, you still float above the median—you have indeed “failed” the Means Test and will need to file a Chapter 13 bankruptcy.
The Chapter 7 Means Test: The Bottom Line
The bottom line is that no layperson or online “Means Test calculator” can accurately calculate a Chapter 7 Means Test for your particular potential case.
It requires the input of other bankruptcy petition schedules that require a bankruptcy lawyer for completion.
It requires the application of deductions according to the requirements of judicial decisions in the Federal jurisdiction in which the case is to be filed.
No layperson or website will be able to accomplish this with accuracy.
Further, even if you pass the Means Test, you may still not be eligible for Chapter 7. It is the primary test for income eligibility—but not the only test.
If you have low income but reside at home with your parents and thus have low expenses, this may cause an eligibility issue, to name one example.
In short, if you are considering filing for Chapter 7 bankruptcy, contact an experienced bankruptcy lawyer to guide you through your eligibility analysis—and to maximize the odds of success in your case.
Noble Path Legal has successfully represented hundreds of clients through Chapter 7 and Chapter 13 bankruptcy processes in Michigan.