Understanding Chapter 7 Bankruptcy: What Are the Income Limits?
Are you feeling buried under a mountain of debt and considering whether Chapter 7 bankruptcy could be your path to relief? You are not alone; many Americans face the tough decision of whether to file for bankruptcy. Chapter 7 bankruptcy is designed to provide relief from overwhelming debt, but not everyone qualifies. Your income is a key factor that dictates whether you can take advantage of this fresh start.
Before filing for Chapter 7, it’s essential to know the bankruptcy income limits set by the means test, which assesses your financial situation and determines your eligibility. Misunderstanding these limits could not only delay your process but could also derail your chances of obtaining the relief you seek. In this article, we’ll break down what these income restrictions are, how they are calculated, and what steps you need to take to see if Chapter 7 is the right option for you.
Income Eligibility Requirements for Chapter 7 Bankruptcy
Income eligibility requirements for Chapter 7 bankruptcy petitions are determined by the means test, which evaluates your income relative to the median income for your state. To qualify, your monthly income must fall below the median income threshold after accounting for necessary expenses, such as housing, transportation, and utilities.
If your annualized income exceeds this median income level, you might still qualify by passing a secondary means test that evaluates disposable income after deducting allowable expenses.
It is essential to ensure that only those who genuinely cannot afford to repay their debts can access the benefits of Chapter 7 bankruptcy, which allows for the discharge of unsecured debts like credit card debt and medical debt, while also providing a measure of scrutiny to prevent abuse of the bankruptcy system.
Even individuals with substantial regular income may qualify by demonstrating that their monthly disposable income is low due to necessary living expenses. Exceeding income limits does not prevent filing for Chapter 7 but may affect eligibility for discharge.
Therefore, anyone considering the Chapter 7 bankruptcy option should assess their income and expenses thoroughly, possibly with the help of an experienced bankruptcy attorney’s legal advice.
Key Considerations:
- Compare income against the state median for household size.
- Deduct allowable expenses to determine disposable income.
- Consult a bankruptcy attorney for personalized guidance.

What is The Chapter 7 Bankruptcy Means Test?
The Chapter 7 means test assesses a debtor’s eligibility for bankruptcy. If they fail, they can only file for Chapter 13, which involves a structured repayment plan lasting 3 to 5 years. The test checks for potential abuse of the system, ensuring debtors aren’t filing for Chapter 7 when they could repay some debts. It primarily evaluates the debtor’s ability to pay creditors. [1]
The means test has two steps:
1. Is the debtor’s monthly income above the median for their state?
The Census Bureau updates the median income for states annually. If the debtor’s average monthly income over the last 6 months, excluding the filing month, is below the state’s median, they automatically pass the means test.
However, if the debtor has income higher than the median income, the debtor will have to go to step 2 of the means test.
2. To determine eligibility, subtract the debtor’s allowable expenses from their current monthly income. Multiply the resulting difference by 60 months. The outcome will dictate the following:
- If the total is greater than or equal to an annual income of $12,850,000, the debtor must file for Chapter 13 bankruptcy.
- If the total exceeds 25% of the unsecured debt, the debtor is also required to file for Chapter 13 bankruptcy.
- If the total is less than or equal to 25% of the unsecured debt, the debtor has the option to file for either Chapter 7 or Chapter 13 bankruptcy.
- If the total is less than or equal to $7,700,000, the debtor again has the choice between Chapter 7 and Chapter 13 bankruptcy.
To pass step 2 of the means test, the debtor must record expenses like food, clothing, healthcare, housing, utilities, and transportation. Some deductions can increase if they demonstrate actual, reasonable, and necessary expenses.
Filing for Chapter 7 bankruptcy relief requires you to complete all sections of Bankruptcy Form 122:
Official Form 122A-1
Official Form 122A-1Supp (Statement of Exemption from Presumption of Abuse Under § 707(b)(2))
Official Form 122A-2 (Chapter 7 Means Test Calculation) (collectively the “122A Forms”)

How to Find the Median Household Income of Your State
To find the median household income of your state, you can start by visiting the U.S. Census Bureau’s website, which provides comprehensive income data collected through the American Community Survey. Navigate to their “Data” section, where you can access state-level statistics, including household income figures.
Failing the Means Test
If you fail the means test for Chapter 7 bankruptcy, you cannot file under this chapter. Instead, consider Chapter 13, which allows you to create a repayment plan over a 3 to 5-year time period. This option is ideal if you want to retain assets like a home or car while restructuring debts.
Consulting with an experienced bankruptcy attorney can help you find alternative solutions tailored to your financial circumstances.
Current Monthly Income vs. Household Expenses
Your current monthly income vs. your household expenses is examined when evaluating eligibility for Chapter 7 bankruptcy. The current monthly income is the average income received over the six months before filing, excluding social security and certain crime-related payments. This figure also considers all regular contributions from non-debtors within the household.
Household expenses, or allowable expenses, include necessities such as healthcare, housing, food, personal care, and transportation costs. These expenses are subtracted from the current income to calculate disposable income. If a debtor’s disposable income exceeds 25% of their unsecured debts over five years, the presumption of abuse arises, requiring justification for Chapter 7 eligibility.

Exemptions for Service Members
Service members such as disabled veterans, National Guard personnel, and reservists have specific exemptions in Chapter 7 bankruptcy. Disabled veterans with a disability rating of at least 30% and discharged due to that disability are exempt from the means test if they incurred most debts while serving in homeland defense or active duty. [2]
National Guard and reservists called to active duty can also bypass the means test for 540 days following service of at least 90 days, a benefit extended by the National Guard and Reservists Debt Relief Extension Act of 2023. Additionally, compensation related to service is excluded from income considerations for bankruptcy filings. [3]
The HAVEN Act provides further relief, enabling eligible veterans and service members to exclude compensations like payments to victims of the war and Benefits received under the Social Security Act, from the means test. [4]
If you are struggling with debt, explore your Chapter 7 bankruptcy options with Richard West by booking a free consultation.
Sources:
[1] Means test. (n.d.). LII / Legal Information Institute. https://www.law.cornell.edu/wex/means_test
[2] The Means Test & Legal Eligibility for Chapter 7 Bankruptcy. (2024, October 18). Justia. https://www.justia.com/bankruptcy/chapter-7/means-test/
[3] National Guard and Reservists Debt Relief. (n.d.). https://www2.mssb.uscourts.gov/RoboHelp/ECF_Docketing_Guide/Miscellaneous/National_Guard_and_Reservists_Debt_Relief.htm
[4] Twomey, T., Klinger, L., National Consumer Bankruptcy Rights Center (NCBRC), National Consumer Law Center (NCLC), Veterans Legal Services, American Bankruptcy Institute Veterans Affairs Task Force, Bender, J., Stanger, K. M., Shank, E., Rao, J., & Boltz, E. (2019). GUIDE TO THE HAVEN ACT. https://www.nclc.org/wp-content/uploads/2022/08/haven-act-guide-nov2019-1.pdf