Having income does not automatically disqualify you from Chapter 7. The means test is designed to evaluate your full financial picture, not just your gross paycheck.
How the Means Test Treats Employment Income
The means test calculates your average monthly income over the six full calendar months before filing. This includes wages, salary, bonuses, commissions, overtime, and income from all sources. But it also allows significant deductions.
Deductions That Help Employed Filers Qualify
- Taxes: Federal, state, local income taxes, Social Security, and Medicare taxes are all deducted
- Health insurance: Your premium payments are deductible
- Secured debt payments: Mortgage, car loan, and other secured debt payments are deducted in full
- Child care: Daycare and dependent care costs
- IRS standards: The means test uses IRS Local and National Standards for housing, transportation, food, and other living expenses -- these are often generous
- Mandatory retirement contributions: 401(k) contributions, union dues
Strategic Filing Timing
Because the means test uses a 6-month lookback period, the timing of your filing can matter. If you recently lost overtime, a bonus, or a second job, waiting until those higher-income months fall outside the 6-month window can help you qualify. Conversely, if you just started a new higher-paying job, filing sooner may be advantageous.
Many people with household incomes of $60,000-$80,000+ pass the means test when all deductions are properly calculated. Do not assume you are ineligible without running the numbers.