Tips on Passing the Means TestAbove-median income debtors who want to file Chapter 7 bankruptcy must take and pass what is called the Means Test.  The Means Test allows an above-median income debtor to subtract IRS allowed expenses and secured debt payments from their income.  If after making these subtractions the debtor’s income falls below the median income, they debtor will be allowed to file Chapter 7 bankruptcy. However, if they fail the Means Test they will need to file Chapter 13 bankruptcy and repay their debts over the course of three to five years.  Below are few tips on how above-median income debtors can increase their chances of passing the bankruptcy Means Test:

  1. Maximize your retirement contributions as allowed by the IRS.  Bankruptcy debtors taking the Means Test are allowed to deduct IRS approved retirement contributions from their income; therefore maximizing your contributions and can go a long way in helping you qualify for Chapter 7 bankruptcy.
  2. Continue making charitable contributions. The IRS allows you to deduct charitable contributions from your income when taking the bankruptcy Means Test.  Maximizing your charitable contributions will increase your chances of passing the bankruptcy Means Test.
  3. Keep your car if you have a car note.  The bankruptcy Means Test allows debtors to deduct the payments they make on their vehicle. So in this particular situation dumping your car payment might work against your desire to file Chapter 7 bankruptcy.
  4. Make sure you deduct your tax obligations. For those individuals that owe taxes at the end of the year, the bankruptcy Means Test allows them to deduct those obligations from their income which may pull their income below the median-income for their location, thus qualifying them for Chapter 7 bankruptcy.