The means test, explained

Congress added the means test in 2005 to make sure Chapter 7 went to households that genuinely could not pay their debts. It is a federal calculation, applied state-by-state, that compares your average household income over the prior 6 months to the median income for your state and household size.

It runs in two steps. Step 1 is purely income vs. median. Step 2 (only if you fail Step 1) adds expense calculations — national and local standards plus actual specified expenses — to compute "disposable income" and decide whether Chapter 7 is still allowed.

For most Fresh Slate users, only Step 1 matters. If your household income over the prior 6 months is at or below the California median for your household size, you pass automatically — no expense math required.

The US Trustee program publishes the medians twice a year (usually April and November). Below are the figures for California as of the most recent update. To pass Step 1, your average annual household income over the last 6 months must be at or below the figure for your household size.

The means test looks at the last 6 full months before the month you file. So if you file in October, the income window is April through September. Take the total income from all sources during that window and multiply by 2 to get the annualized figure that gets compared to the median.

Income includes: wages, salary, tips, commissions, bonuses; unemployment (sometimes excluded — see below); rental income; business income; pension and retirement distributions; alimony or child support received; regular cash gifts from family.

Notably excluded: Social Security benefits (per Hamilton v. Lanning, 560 U.S. 505 (2010)), most VA benefits, war crime/terrorism payments. Most unemployment also excludes from the means test as a "benefit under the Social Security Act," though this varies by district — Eugenio confirms in the attorney review.

Failing Step 1 does not mean you cannot file Chapter 7. It means you go to Step 2, the expense-based portion of the calculation. Step 2 subtracts allowed expenses (national standards for food/clothing, local standards for housing/transportation, plus specified actual expenses) from your income to compute "disposable monthly income."

If your disposable monthly income times 60 (5 years) is less than $9,075, you pass. If it is between $9,075 and $15,150, the court runs a presumption analysis. Above $15,150, the presumption is that you should file Chapter 13 instead. These thresholds update with inflation.

Step 2 is where Fresh Slate routes you to a free attorney consultation. The math gets complicated and the stakes for getting it wrong are high — an incorrectly filed above-median case can be converted to Chapter 13 or dismissed entirely.