Do I Qualify for Chapter 7 Bankruptcy?

The following is presented for informational purposes only and is not intended as legal advice.

Personal bankruptcies are on a massive upswing right now. There were nearly 50% more personal bankruptcies filed in 2025 than just three years earlier.

Of course that number is a little skewed because personal bankruptcies dried up during the pandemic when many financial obligations were on hold. But it does reflect the reality that the further we get away from the safety nets that were in place during the pandemic, the more American families are starting to suffer financially.

Bankruptcy can be great solution for consumers in deep financial distress, but it's far from automatic. So if you're thinking about filing for personal bankruptcy, it may be helpful to consider whether or not your situation qualifies for the kind of relief you need.

What is Chapter 7 bankruptcy?

There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 is what most of us think of when we hear "bankruptcy." It's a liquidation plan where your nonexempt assets are sold and the proceeds from that sale is used to repay your creditors (at least partially).

Chapter 13 is known as a "wage earner's plan." There's no sale of nonexempt assets, but you are enrolled in a strict 3-5 year repayment plan. The payment amount is based on a number of factors, including your disposable income. How much of each debt you ultimately repay is determined by the court, but anything not paid in full is still considered satisfied as long as you successfully complete the repayment plan.

If money's really tight and you don't have an expansive collection of second, third, and fourth homes, you'd probable prefer a Chapter 7 bankruptcy. In order to qualify for a Chapter 7 personal bankruptcy, however, you'll need to pass a means test.

What is a means test?

"Do you have the financial ability to repay some or all of your debts?"

That's essentially the question that a means test is attempting to answer. Chapter 7 bankruptcy is technically reserved only for those who really need it. If the numbers suggest that you could repay at least some of your debts, the court may determine that Chapter 13 bankruptcy is a more appropriate option for you.

What factors are considered in a means test?

Whether or not you qualify for Chapter 7 bankruptcy is for the court to decide. You should absolutely work with a qualified attorney to help you make a decision and work through the filing process.

That said, the factors included in a means test are fairly consistent from state-to-state. If you're in the early stages of considering your options, understanding these factors can give you a rough idea of whether or not you may qualify for Chapter 7 bankruptcy.

Income

Can you afford a repayment plan? Well, definitely not if you don't have any income.

Assuming you do earn some kind of income, your means test will usually begin be calculating your average gross monthly income over the previous six months. This usually includes:

• Wages and salary
• Bonuses and commissions
• Overtime
• Self-employment income
• Rental income
• Pension income

Some sources of income, including Social Security benefits, are excluded from the calculation.

Note that timeframe: it's the average income over the previous six months. In other words, if you're freshly out of a job, the means test may reflect that you're still making good money. The timing of when you file for bankruptcy is important.

Household size

How many people are living in your home (and relying on your income)? Larger households need more money to function and survive. 

State median income

Your six-month average income is compared to the median income for a household of your size in your state.

• If you're below the median: You generally pass the means test and may qualify for Chapter 7.
• If you're above the median: You don't qualify yet, and your means test continues.

Allowable living expenses

If your income is too high to qualify on income and household size alone, you move on to an analysis of your expenses.

Certain expenses are "allowed" under the Bankruptcy Code up to a certain amount. This is basically the minimum it's assumed you'll need to spend on that category.

The IRS has national standards for the monthly cost of food, clothing, housekeeping supplies, personal care products, and miscellaneous items. As part of the means test, you'll need to subtract the applicable amount of these allowable living expenses from your monthly income.

There are also certain expenses where you can subtract the actual amount you pay each month. This includes:

• Health insurance
• Child care
• Taxes
• Mandatory payroll deductions
• Court-ordered support payments (child support or alimony) 

Secured debt payments

If you have an auto loan, mortgage, or other loan secured with real property, those payments are also subtracted from your average income to find your disposable income.

Projected disposable income

Here's where all of those numbers come together. You take your average monthly gross income, then subtract the allowable living expenses for your family size and any secured debt payments. This gives you your disposable monthly income. Multiply that number by 60 and you'll get your projected disposable income over the next five years.

This is the big number that courts will be looking at to determine if you qualify for Chapter 7 bankruptcy. The threshold is different depending on where you live, but if your projected disposable income exceeds the threshold in your state or district, you're typically considered to have too much income for Chapter 7.

Special circumstances

Failing the means test isn't the end of the line, though. Even if your projected disposable income is considered to be too high, you may still qualify for Chapter 7 if you can prove there are special circumstances impacting your finances. The most common special circumstance is a serious (and costly) medical condition, but anything that would make repaying your debts hard or flat out impossible is worth sharing with the court.

Considerations beyond the means test

The means test is a big part of the equation when trying to file for Chapter 7 bankruptcy, but it's not the only factor. The court will also consider:

• Types of debts included (business or consumer)
• Federal and state exemption laws
• Prior bankruptcy filings
• Accuracy of your bankruptcy petition

There are a lot of moving parts, which is another reason why working with a qualified attorney is a smart move.

If you're not sure if bankruptcy is right for you (or if you'll even qualify), you have other options. At MMI, we offer free financial advice from certified debt advisors. We can show you all of your options and even help you create a customized debt repayment plan that gets you out of debt 7x faster than paying on your own.