The Means Test — Determining Eligibility for Chapter 7 and Disposable Income for Chapter 13 Bankruptcy in Las Vegas

If you’re considering filing for personal bankruptcy, you are going to encounter the term “Means Test.” It’s one of the most important parts of deciding whether you can file under Chapter 7, the type of bankruptcy that wipes out most debts quickly, or whether you may need to file under Chapter 13 and repay at least some portion of your debts through a structured repayment plan.

At Larson & Zirzow, our Las Vegas bankruptcy lawyers help individuals and families work through the Means Test confidently and accurately. We make sure the numbers are done right, all allowed deductions are taken, and you understand what your options truly are so you can get the best possible result for your situation.

What Is the Means Test?

The Means Test is a calculation Congress added to the bankruptcy laws in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The goal was to make sure people who can afford to repay some amount of their debts do so, rather than wiping them out entirely through Chapter 7.

The test compares your income to the median income for a household of your size in Nevada. If your income is below that median, you generally “pass” the Means Test and can file Chapter 7 without further analysis. If it’s above median, you must complete a more detailed calculation that looks at your income, allowed expenses, and how much disposable income you may have left over to pay creditors.

Why the Means Test Matters

For individuals and families in financial crisis, the difference between qualifying for Chapter 7 and having to file Chapter 13 can be significant. Chapter 7 typically wipes out qualifying debts in about four months and doesn’t require any repayment plan. Chapter 13, on the other hand, involves a three to five year repayment plan where you pay back some, or in certain situations all, of your debts according to what the Means Test determines you can afford.

Because the Means Test is complex and easily misunderstood, many people assume they don’t qualify for Chapter 7 when, with careful review and strategic planning, they actually do. In a Chapter 13, missing an allowable deduction or not making a miscalculation can result in you having to pay back more debt than you may otherwise be required. That’s where experienced bankruptcy counsel makes all the difference.

How the Means Test Works

The Means Test has two main steps:

Step 1: Comparing Your Income to the State Median

First, we calculate your current monthly income, which is your average income over the six months before the month you file, not necessarily what you’re earning right now. We multiply that average by 12 to get your annualized income, then compare it to the median annual income for a household of your size in Nevada.

If you’re below the median, you pass the Means Test. Most people who pass at this stage can file for Chapter 7 without having to complete the detailed second part.

Step 2: Calculating Disposable Income

If your income is above the state median, the second step kicks in. Here, you subtract certain allowed expenses from your income to determine how much disposable income you have according to the calculations, which may not match the reality of your actual monthly expenses.

Allowed expenses on the Means Test include things like:

• Housing and utilities
• Food and household supplies
• Clothing
• Medical and dental expenses
• Payments on secured debts (like your mortgage or car loan)
• Certain taxes, insurance, and other necessary costs

After subtracting these amounts, if your remaining disposable income is low enough you may qualify for Chapter 7. If it’s too high, you may need to file Chapter 13 instead.

Why Accurate Means Test Preparation Matters

The Means Test is more than just filling in numbers on a form. Small mistakes, like miscalculating income, overlooking deductions, or failing to use the most current median income and expense deduction figures, can mean the difference between qualifying for Chapter 7 or being forced into a repayment plan.

At Larson & Zirzow, we do a thorough analysis of your income, expenses, and debts to make sure you get every deduction to the fullest extent the law allows. We know how to handle unusual income situations like seasonal and commission based work, recent changes in employment or earnings, or irregular income sources like bonuses, to make sure the Means Test reflects your financial reality as accurately as possible.

Planning Ahead Because Timing Can Matter

In some cases, a client’s income is temporarily higher because of overtime, severance pay, or short-term work. Because the Means Test looks at the past six months, waiting a month or two before filing can sometimes make the difference between qualifying for Chapter 7 or not.

We help you look at the full picture and choose the best timing for your filing. If waiting makes sense, we’ll advise you how to protect yourself during that time so creditors don’t take advantage of you with lawsuits, garnishments, or other collection actions.

Means Test for Business Debts

If your debts are primarily business debts, you may not even have to complete the Means Test at all. That’s because the test only applies if most of your debts are personal or consumer debts (like credit cards, personal loans, or medical bills). If more than half of your debt comes from operating a business, you can often file Chapter 7 without passing the Means Test.

This is especially important for small business owners, sole proprietors, or people with personal guarantees on business loans. Our team helps you sort out which debts count and how to present your case clearly and accurately to the court.

What Happens If You Don’t Pass the Means Test?

If the Means Test shows you have enough disposable income to repay some portion of debt you owe creditors, you generally won’t qualify for Chapter 7. But that doesn’t mean you’re out of options. Many clients file Chapter 13 instead, using the law’s protections to stop creditor actions, cure mortgage arrears, protect assets, and repay what they can afford over time.

Chapter 13 has powerful tools for people who need to save a home from foreclosure, stop repossession, or pay non-dischargeable debts like child support or certain taxes. It’s not a punishment; it’s a lifeline for people who need structure to regain control, but don’t qualify for Chapter 7.

Why Larson & Zirzow for Bankruptcy in Las Vegas?

We understand the Means Test inside and out. As a boutique bankruptcy firm with decades of focused experience, we handle even the most complicated Means Test calculations with surgical precision.

We don’t leave you guessing whether you qualify, or whether the amount being repaid could be less. We do the math, explain the results, and craft a plan that fits your reality, not just a formula on a page.

Talk to Us About Your Options

If you’re considering bankruptcy but worried you won’t qualify for Chapter 7, don’t assume anything until you talk to us. The Means Test is complex and intimidating, but with the right guidance, it often opens more doors than you think.

Larson & Zirzow is here to help you understand your options and make smart choices that protect your future. Contact us today for a no-cost, 30-minute telephone consultation. Let’s run the numbers together and see how we can get you the relief you need on terms that make sense for you and your family.