Filing for bankruptcy can feel overwhelming, especially when you’re trying to figure out if you even qualify. The means test is one of the biggest hurdles you’ll face when considering Chapter 7 bankruptcy in Minnesota. This financial assessment determines whether your income is low enough to proceed with Chapter 7 or if you’ll need to explore other options.
Let’s break down exactly how this test works, what numbers matter, and what happens if your results aren’t what you hoped for.
What Is the Means Test for Minnesota Bankruptcy?
The means test is a calculation required by federal bankruptcy law to determine if you have enough disposable income to repay your debts. Congress created this test in 2005 to prevent people with higher incomes from using Chapter 7 bankruptcy to discharge debts they could potentially repay through a Chapter 13 repayment plan.
Think of it as a financial snapshot. The court wants to see if you have money left over each month after covering necessary expenses. If your income falls below certain thresholds or your allowable expenses eat up most of your income, you pass. If you have significant disposable income remaining, you might not qualify for Chapter 7.
The test looks at your income over the past six months and compares it to Minnesota’s median income for a household your size. It also factors in specific expenses that the IRS and bankruptcy law allow you to deduct. The final number tells the court whether you have the means to repay your creditors.
Income Requirements for Chapter 7 Bankruptcy in Minnesota
Your gross income plays the starring role in this calculation. To pass the means test automatically, your household income must fall below the median income for Minnesota households of the same size. These figures get updated regularly to reflect economic changes.
The test doesn’t just look at your salary. It includes almost every dollar that comes into your household. That means wages from all jobs, overtime pay, bonuses, commissions, rental income, pension payments, Social Security benefits, unemployment compensation, and even regular contributions from family members all count toward your total income.
Some income sources don’t count, though. Social Security benefits received for a dependent child, payments under the federal Social Security Act, and certain war crimes victim payments are excluded. Tax refunds also don’t count as income for means test purposes.
If you’re married, the court generally includes your spouse’s income even if they’re not filing bankruptcy with you. There are exceptions if you’re legally separated or living apart, but the default assumption is that married couples pool their resources.
How to Calculate Your Current Monthly Income
Current monthly income sounds straightforward, but bankruptcy law defines it in a specific way. You’ll need to gather six months of income documentation, including pay stubs, bank statements, and records of any other money you received.
Add up all your gross income from the past six months. Don’t subtract taxes, insurance premiums, or retirement contributions yet. You want the total amount before any deductions. Once you have that six-month total, divide it by six to get your average monthly income.
This average then gets multiplied by twelve to create an annual figure. Yes, you’re taking a six-month average and projecting it over a year. This method can work in your favor if you recently lost a job or took a pay cut. It can work against you if you just started earning more money.
The timing of when you file matters tremendously. If you received a large bonus four months ago, that money will inflate your average for two more months. Waiting to file until that bonus falls outside the six-month window could change your results entirely.
Minnesota Median Income Thresholds by Household Size
Minnesota’s median income figures change every few months based on census data and economic conditions. As of the most recent update, a single-person household has a median income of around $67,000 annually. For a two-person household, that number jumps to roughly $83,000. Three-person households see a median of $95,000, and four-person households are around $115,000.
These numbers continue to increase with each additional household member. A five-person household might have a median income threshold of $125,000, while larger families see even higher figures.
If your calculated annual income falls below the median for your household size, you pass the means test automatically. You don’t need to complete the rest of the calculation. You can proceed with Chapter 7 bankruptcy without further income scrutiny.
Household size includes you, your spouse if you’re married, your children living with you, and any other dependents you support. Foster children count. Adult children who still live at home and depend on you financially count. Roommates who pay rent and support themselves don’t count.
Allowable Deductions That Reduce Your Disposable Income
When your income exceeds the Minnesota median, you don’t automatically fail. You move to the second part of the means test, where you subtract allowable expenses from your income. These deductions can make a huge difference.
The IRS provides national and local standards for necessary living expenses. You can deduct amounts for food, clothing, household supplies, personal care, and miscellaneous expenses based on your household size. These are fixed amounts that everyone gets regardless of actual spending.
Housing and transportation expenses use local standards specific to Minnesota counties. Your actual mortgage or rent payment might be higher or lower than the standard, but you’ll typically use the standard amount unless your actual secured debt payment exceeds it.
You can deduct your actual payments on secured debts like mortgages and car loans. If you’re behind on these payments and trying to catch up, those amounts count too. Property taxes, homeowner’s insurance, and vehicle insurance all qualify as deductions.
Health insurance premiums, out-of-pocket medical expenses that exceed a certain threshold, childcare costs, and mandatory payroll deductions like taxes and Social Security also reduce your disposable income. If you’re paying court-ordered support like child support or alimony, those payments come off your income as well.
Some expenses that feel necessary don’t count. Your gym membership, streaming services, dining out, and entertainment expenses aren’t allowable deductions. The means test uses standardized amounts for many categories rather than your actual spending.
What Happens If Your Income Exceeds the Minnesota Median?
Exceeding the median income doesn’t mean you’ve failed yet. After subtracting all your allowable expenses from your current monthly income, you’ll arrive at your monthly disposable income. Multiply that number by sixty to get a five-year total.
If that five-year total is less than the threshold, you pass the means test. If it exceeds the upper limit, you fail. If you fall between those two numbers, there’s a formula that compares your disposable income to your total unsecured debt. You might still pass if your disposable income is not a significant portion of your unsecured debts.
Failing the means test doesn’t end your bankruptcy options. It means Chapter 7 isn’t available to you based on your income. The court presumes you have enough money to fund a Chapter 13 repayment plan instead.
Common Reasons People Fail the Means Test
High income relative to household size is the most obvious reason. If you’re a single person earning $90,000 annually with minimal secured debts, you’ll likely have too much disposable income for Chapter 7.
Recent income increases can trip people up. Maybe you were unemployed for part of the six-month lookback period, but just started a well-paying job. Your six-month average might still be low enough to pass, but the court could question whether your current situation reflects that average.
Low secured debt payments also affect results. If you own your home outright or drive a paid-off car, you’re missing major deductions that many people use to reduce disposable income. Without mortgage or car payments, more of your income looks disposable.
Some people fail because they don’t claim all the deductions they’re entitled to. They might forget about medical expenses, childcare costs, or other allowable items that would reduce their disposable income.
Your Options When You Don’t Pass the Means Test
Chapter 13 bankruptcy becomes your primary alternative. This option lets you keep your property while repaying a portion of your debts through a three-to-five-year payment plan. Your monthly payment is based on your disposable income, and whatever you don’t repay gets discharged at the end of the plan.
Many people actually prefer Chapter 13 once they learn more about it. You can catch up on missed mortgage payments, strip off second mortgages in some situations, and cram down car loans to the vehicle’s actual value. These benefits aren’t available in Chapter 7.
Waiting to file is another option. If your income recently spiked due to a bonus, overtime, or temporary work, waiting a few months might change your six-month average enough to pass the means test. We can calculate exactly when your numbers would improve.
Some people discover they don’t need bankruptcy at all. If you’re failing the means test because you have substantial disposable income, you might be able to negotiate with creditors, work with a credit counselor, or develop a debt repayment strategy outside of bankruptcy.
Special Circumstances That May Affect Your Results
Military service members and veterans have special protections. If you’re on active duty or were recently discharged, different rules might apply to your means test calculation. Disabled veterans may be exempt from the means test entirely if their debts were incurred primarily while on active duty.
Business owners face unique challenges. If you operate a business, separating business income from personal income and identifying allowable business expenses requires careful analysis. The means test treats business income differently from wage income in some situations.
Sudden income changes matter. If you lost your job, took a pay cut, or experienced a major life change after the six-month lookback period, the court might consider your current situation rather than your historical income. You’ll need to demonstrate that your circumstances have genuinely changed.
Medical debt and catastrophic expenses sometimes warrant special consideration. If extraordinary medical bills consumed most of your income during the lookback period, the court might account for that when evaluating your ability to repay debts going forward.
How Kain + Henehan Can Help You Navigate the Means Test
We’ve helped countless Minnesota residents work through means test calculations and determine their best path forward. The numbers can be confusing, and small mistakes in how you report income or claim deductions can affect your results.
We start by gathering all your financial information and running preliminary calculations. This shows us whether you’re likely to pass the means test for Chapter 7 or if Chapter 13 makes more sense for your situation. Sometimes the answer isn’t immediately clear, and we need to dig deeper into your specific circumstances.
If you’re close to the threshold, we look for strategies that might improve your results. That could mean waiting to file until certain income falls outside the six-month window, or making sure we’ve identified every allowable deduction you’re entitled to claim.
We also help you understand what each bankruptcy chapter offers. Passing the means test doesn’t automatically mean Chapter 7 is your best option. We explain the pros and cons of each approach based on your goals, your assets, and your long-term financial picture.
Our office in St. Cloud serves clients throughout central Minnesota. We know the local trustees, understand how Minnesota exemptions work, and stay current on the latest changes to median income figures and allowable expense standards.
Get Answers to Your Bankruptcy Questions
The means test is just one piece of the bankruptcy puzzle, but it’s a critical one. Whether you pass or fail determines which options are available to you and how you’ll move forward with debt relief.
Don’t let uncertainty about the means test stop you from exploring your options. Contact Kain + Henehan by calling (612) 438-8006 or filling out the online form to schedule a consultation. We’ll walk you through the numbers, answer your questions, and help you make an informed decision about your financial future.