Bankruptcy Means Test: Do You Qualify for Chapter 7 Relief - Part 2

of giving. The law permits only specific enumerated expenses, and charitable giving isn't included. Continuing large charitable contributions while seeking bankruptcy might also raise good faith questions. Focus on allowed deductions rather than trying to maintain pre-bankruptcy giving levels. What if my income just dropped significantly? Recent income drops don't immediately help with the means test, which uses historical six-month averages. However, forward-looking special circumstances arguments might overcome presumed abuse. Document job loss, hour reductions, or pay cuts thoroughly. The stronger your evidence that reduced income is permanent, not temporary, the better your special circumstances argument. Do I include my spouse's income if filing alone? Yes, the means test requires including non-filing spouse's income to determine household CMI. However, you can then deduct the portion of spouse's income not regularly contributing to household expenses. This "marital adjustment" recognizes that spouses might maintain separate financial obligations. Calculate carefully—improper marital adjustments invite scrutiny. How do self-employed individuals calculate income? Self-employed filers use gross receipts minus ordinary and necessary business expenses to determine business income. The six-month average captures income fluctuations common in self-employment. Maintain good records distinguishing business from personal expenses. Some aggressive business deductions might face challenge if they appear to manipulate means test outcomes. Can student loans help me pass the means test? Yes, student loan payments can significantly impact means test calculations. While not explicitly listed as allowed deductions, many courts permit deducting student loan payments as necessary for producing income or under special circumstances. Document the required nature of payments and any consequences of non-payment. Income-driven repayment plans complicate calculations but don't preclude deduction. What about tax debts and domestic support obligations? Priority debts like recent taxes and domestic support receive special treatment. You can deduct amounts required to pay priority debts in full over five years. Additionally, actual monthly tax withholdings and court-ordered support payments are allowed deductions. These obligations often help above-median earners qualify by reducing disposable income available for general creditors. Do retirement contributions count as deductions? The law specifically excludes voluntary retirement contributions from allowed deductions when calculating disposable income. You cannot qualify for Chapter 7 by maximizing 401(k) contributions. However, mandatory retirement contributions and loan repayments for retirement account loans are permitted deductions. The distinction between voluntary and mandatory contributions significantly impacts some filers' calculations. How often do people actually fail the means test? Surprisingly few bankruptcy filers fail the means test outright. Statistics show less than 10% of filers face presumed abuse findings, and many overcome presumptions through special circumstances or correct calculations. The test's mechanical nature and numerous deductions mean most people genuinely unable to pay debts qualify for Chapter 7, despite initial income concerns. ### Mastering the Means Test for Chapter 7 Success The means test represents a critical gateway to Chapter 7 bankruptcy relief, but it's not the insurmountable barrier many fear. By understanding its mechanical operation, identifying all allowed deductions, and properly timing your filing, you can navigate this requirement successfully even with above-median income. Remember that the means test serves a legitimate purpose—ensuring Chapter 7 remains available for those truly needing complete debt discharge while directing those with repayment ability toward Chapter 13. This objective standard, while complex, provides predictability and fairness in bankruptcy access. Working through calculations methodically reveals that most people struggling with overwhelming debt qualify for the relief they need. The key to means test success lies in thorough preparation and accurate calculation. Gather six months of income documentation, understand your household composition, and identify all allowable deductions. Small errors in calculation can mean the difference between qualifying and facing presumed abuse. When in doubt, professional assistance helps ensure accuracy and maximizes your chances of passing. For those who don't pass initially, remember that options remain available. Special circumstances can overcome presumptions for those facing extraordinary situations. Chapter 13 provides powerful debt relief tools even if Chapter 7 isn't available. The means test directs you toward appropriate relief, not away from bankruptcy protection entirely. Most importantly, don't let means test fears prevent you from seeking needed debt relief. The complexity that seems daunting at first glance becomes manageable when broken into steps. The numerous deductions and exceptions mean that most people who genuinely cannot afford their debts will qualify for Chapter 7, regardless of headline income figures. Understanding the means test empowers informed decisions about bankruptcy timing and strategy. Whether you clearly pass, clearly fail, or fall in the gray area between, knowledge of how the test works helps you plan effectively. This mathematical formula, properly applied, opens the door to the fresh financial start you deserve through Chapter 7 bankruptcy.