Most people who assume they earn too much for Chapter 7 pass the means test anyway. The test is not a judgment about whether you deserve relief, it is an arithmetic exercise with two stages, and a lot of people clear it at stage one.
Stage one compares your household income to the California median for your household size. If you come in under, you are done. If you come in over, you move to stage two, where allowed expenses get subtracted and the answer often flips.
The six months that count
The test looks backward at the six full calendar months before the month you file. Not last year. Not what you make now. If you file in October, the window is April through September. That timing matters more than almost anything else on this page, because a person laid off in July can look wealthy in an August filing and look broke in a December filing, with nothing about their actual life having changed except the calendar. Sometimes the right advice is to wait sixty days.
“I have told people to go home and come back in two months more times than I can count. It costs them nothing and it changes the math completely.”
Naomi Reyes-AshfordWhat counts as income
- Gross wages, salary, tips, bonuses and commissions
- Self-employment revenue minus business operating expenses
- Rental income, interest, dividends and royalties
- Unemployment compensation, whose treatment is argued and which comes up often
- Regular contributions from anyone else toward household expenses, including a non-filing spouse
- Pension and retirement distributions you actually receive
- Social Security retirement and disability benefits are the notable exclusion, and that single exclusion decides a fair number of cases for older filers
Stage two, if you are over median
Being over the median line is not a rejection. It moves you onto the long form, where you subtract IRS-published living standards for your county along with your actual secured debt payments, taxes, childcare, health insurance and court-ordered support. What remains is disposable income, and if it is small enough, Chapter 7 stays open to you. Housing and vehicle costs in Los Angeles and Orange County run high enough that the long form treats Central District filers reasonably. A $3,400 mortgage payment and two car loans do real work here.
The uncomfortable part
If the long form shows meaningful disposable income, Chapter 7 is off the table and Chapter 13 is what is left. Nobody enjoys hearing that, but it is better to hear it in a consultation than after a trustee moves to dismiss your case.
Business debt skips the test entirely
If more than half your debt is business debt rather than consumer debt, the means test does not apply to you at all. Failed businesses, personal guarantees on commercial leases and SBA loans put people in this category more often than they realize.
Questions we get asked
I just got a raise. Does that disqualify me?
Not by itself. The test looks at the six calendar months before filing, so a raise that started last month barely registers. It does affect the picture if you wait, which is one reason timing gets discussed early.
Does my spouse's income count if she is not filing?
Her income goes into the household calculation, but you can deduct the portion of it that is not contributed to household expenses. This is called the marital adjustment and it needs documentation.
What if I fail the means test?
Chapter 13 is usually the answer, and it is not a consolation prize. It stops foreclosures, cures mortgage arrears, and can strip a wholly unsecured second mortgage in some cases.
Can I just leave a debt off the schedules to change the outcome?
No. The schedules are signed under penalty of perjury and the trustee pulls your credit report. Omissions get found, and they turn a routine case into a serious problem.
What to do next
Gather your last six months of pay stubs, or six months of bank statements if you are self-employed, and count everyone who lives in your home. Those two things run the first stage of the test in a fifteen-minute call at (310) 555-0184.