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    Means Test: Income Limits and Passing with Non-Consumer Debt

    The Means Test determines whether you may be eligible for a Chapter 7 discharge and the amount of your Chapter 13 payments. Supposedly, it is the “perfect formula” from Congress to eliminate judicial discretion in Bankruptcy Cases. If you have too much income under the Means Test, then your Chapter 7 may be dismissed if you do not elect to convert to Chapter 13.  For this reason, the Bankruptcy Code includes provisions, such as 11 U.S.C. § 707(b), which is intended to prevent debtors from obtaining Chapter 7 shelter if they have an ability to pay their creditors.

    In a nutshell, the Means Test compares your average income over the previous six (6) months with demographic Census Bureau income data and IRS expenses.  Too much income automatically presents a presumption of abuse which will result in case dismissal if not overcome.  If you are above the “median income” amounts below, there is a presumption of abuse that must be overcome or your Chapter 7 case will be dismissed.

    Household          Median Income   

    Size                        Annual                  Monthly

    1 Earner               75,235                   6,270

    2 People              93,175                     7,765

    3 People              104,785                  8,732

    4 People              122,707                10,226

    5 People              132,607                11,051

    6 People              142,507                11,876

    7 People              152,407                12,701

    8 People              162,307                13,526

    Even if you exceed the “median income” amounts above and fail the Means Test, there are exceptions and “loopholes” to still obtaining Chapter 7 relief. For instance, social security benefits, veterans disability benefits and income from the National Guard and Military Reserve do not count as income on the Means Test.  Likewise, if your debts are primarily non-consumer debts, then the Means Test does not apply no matter how high your income is.  Section 707(b)(1) states in pertinent part:

    After notice and a hearing, the court, on its own motion or on a motion by the United States trustee . . . may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts . . . if it finds that the granting of relief would be an abuse of the provisions of this chapter.

    Technically you could be an individual making $20,000.00 a month and the Means Test would not apply if your non-consumer debts are higher than consumer debts.

    So what is the difference between a consumer debt and non-consumer debt? The term “consumer debt” is defined as “debt incurred by an individual primarily for a personal, family, or household purpose.” 11 U.S.C. § 101(8). Below are examples of the differences between Consumer and Non-Consumer Debt:

    Consumer Debt:
    – Personal Credit Cards
    – Personal Loans
    – Personal Auto Loan
    – Residential Property
    – Student Loans for personal gain
    – Other debts for personal, family, living expenses

    Non-Consumer Debt:
    – Business Credit Cards
    – Business Loans
    – Guarantor for Business Auto Loan
    – Rental Property (must have been purchased originally as rental)
    – Student Loans mandated by employer
    – Taxes, Business Debts, Investment debts
    – Torts (auto accidents)

    In Westberry, the 6th Circuit Court of Appeals interpreted the term “consumer debt,” as defined in 11 U.S.C. § 101(8), to require “volition.” Westberry, 215 F.3d at 591. That is, the individual must have voluntarily intended to incur the debt for a personal, family, or household purpose. See id. The court posited that debts not incurred voluntarily, such as tax liens and tort judgments, are not classified as consumer debts. Id.

    Recently, in In re Sijan, 19-53347, an Ohio Bankruptcy Court examined the nature of Medical Bills and determined that routine medical services are consumer debts whereas emergency services are non-consumer debts. In that case, the Court stated:

    …………the Debtor’s medical debts arising from emergency medical services cannot be included in the limited class of consumer debts within the meaning of 11 U.S.C. § 101(8) that individuals willingly incur in their daily affairs……….. The Debtor did not intend to have a near death experience and be subjected to six weeks of medical treatment after visiting the emergency room. This is more akin to judgment from a tort action, in which some sort of accident occurs
    and the debtor is found liable for the unforeseen damages….….. The debt arising out of the Debtor’s emergency medical treatment at Broward Health Medical Center is not a consumer debt in nature as defined under 11 U.S.C. § 101(8), because he did not voluntarily incur the debt.

    Ultimately, some debts may be both consumer and non-consumer. Profit motive debts and involuntary debts are generally considered non-consumer. Debts incurred primarily for a personal, family, or household purpose, without profit motive, and voluntarily, are generally considered consumer.

    So while you might be failing the Means Test with high income, if your debts are primarily non-consumer (more than 50%) then the Means Test does not apply to you

    Call or Text (760) 450-3333 or Email to schedule your FREE PHONE CONSULTATION with a Bankruptcy Attorney. Hablamos Espanol.

    At Doan Law our Bankruptcy Attorneys will answer all your Chapter 7 Bankruptcy and Chapter 13 Bankruptcy questions.  Doan Law Firm is California’s Largest Family of Attorneys, Specializing in Bankruptcy and Non-Bankruptcy Alternatives.


    Written by Michael G. Doan– Owner of the Oceanside Bankruptcy office, Michael is a highly skilled Southern California Bankruptcy Attorney Specialist approaching 30 years of experience. Throughout the years he has practiced in numerous fields of law including but not limited to: personal injury, landlord-tenant, workers compensation, insolvency, bankruptcy, consumer rights, debt negotiation, creditor collection abuse, estate planning, contracts, real estate, and tax. Currently, Michael is solely concentrating in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification.