The Means Test in Chapter 7 Bankruptcy: How Does It Apply in Indiana?

The Chapter 7 means test is one of the most important steps in determining whether you qualify for a Chapter 7 bankruptcy case in Indiana. It measures your income, household size, and necessary expenses to see if you have enough disposable income to repay some of your debts through a Chapter 13 plan instead. For many people in Indianapolis, Carmel, Fishers, Greenwood, Avon, and surrounding communities, the means test feels confusing at first, but the rules become much clearer once you understand what the test is really doing.
The means test is not designed to punish people. It is simply a way to make sure Chapter 7 is used by people who need it most. If your income is below Indiana’s median income for your household size, you usually qualify. If your income is above the median, the test uses a formula to determine whether you still have the ability to repay debt. This guide explains how the means test works, what documents you need, and how Indiana families can approach the process with confidence.

The purpose of the means test

The means test was introduced to ensure that debt relief is available to people who cannot realistically pay back unsecured debts such as credit cards, personal loans, and medical bills. Bankruptcy law requires the court to use your last six months of income to determine whether your financial condition fits Chapter 7.
Because the test focuses on numbers rather than personal circumstances, many people who assume they will not qualify are often surprised to learn they do.

Step one of the means test: comparing your income to the Indiana median

The first part of the means test is straightforward. You calculate your average monthly income from the last six months and then compare it to the median income for a household of your size in Indiana. If your income is below the median, you usually qualify without needing to complete the second part of the test.

Step two of the means test: calculating disposable income

If your income exceeds the median, you move to the second step. This part subtracts specific allowed expenses from your income. These expenses include housing costs, transportation, health care, taxes, child support, and other necessary costs. Once those expenses are deducted, the remaining number determines whether you have enough disposable income to repay a portion of your debt.

What counts as income for the means test

When calculating income, the court includes nearly every source of money coming into the household.

This can include:

• Wages and salaries: All income from employment before taxes. This includes bonuses, overtime, and commissions.
• Self employment income: Net earnings after business expenses.
• Pension or retirement income: Withdrawals or regular retirement payments that support your household.
• Unemployment benefits or disability payments: These are included unless specifically excluded by law.
• Rental or investment income: Profits from property or investments.

Because the test looks back at the previous six months, timing matters. If your income recently dropped, it may not immediately reflect your current situation.

Household size and why it matters

The means test compares your income to the median income for Indiana, but that number depends on household size. Household size includes anyone who depends on your income or shares expenses. This can include children, elderly parents, or relatives living in the home.
A larger household means a higher median income threshold, which helps many families qualify.

Indiana median income and local cost factors

Median income levels are updated regularly and vary from year to year. Indiana’s cost of living also affects certain allowed expenses in the means test. Housing costs in the Indianapolis metro area may differ from those in rural counties, and the means test takes these regional differences into account through standardized expense tables.

Allowable deductions and why they matter

The second part of the means test examines your expenses to determine your real disposable income.

Here are the primary categories the court considers:

• Housing and utilities: Mortgage or rent, property taxes, insurance, and utility bills. Standardized local amounts apply, but actual payments matter too.
• Transportation: Car loans, gas, insurance, maintenance, and public transit expenses.
• Health care: Ongoing medical costs and necessary insurance premiums.
• Taxes and payroll deductions: Federal, state, and local taxes withheld from your paychecks.
• Child support or alimony: Required payments ordered by the court.

These deductions help the court understand your realistic monthly budget.

Variable expenses and documentation

Some expenses require documentation because they are not standardized. These can include childcare costs, medical equipment, or care for a family member. The more thorough your records, the more accurate the calculation.

Timing and income fluctuations

Because the test uses a six month average, timing your filing can make a difference. If your income was temporarily high due to overtime, bonuses, or seasonal work, waiting a few months may change the outcome of the test.

Errors that affect accuracy and outcomes

It is common for people to make mistakes on the means test when filing on their own. Some of the most frequent issues include:

• Incorrect income calculations: Missing deposits, counting the wrong months, or using net instead of gross income. These mistakes can shift the result by a wide margin.
• Missing allowable expenses: Many people forget deductions that could help them qualify. Even small expenses can add up over six months.
• Not documenting unusual costs: Expenses such as medical needs or dependent care must be supported with records. Without documentation, the trustee may not accept them.
• Not considering future income changes: The means test focuses on past numbers, but your attorney can help explain upcoming changes.

Avoiding these mistakes can be the difference between qualifying for Chapter 7 or being pushed into Chapter 13.

How Indiana trustees review means test calculations

Trustees look closely at means test paperwork. They compare income figures with pay stubs and tax records and evaluate whether the expenses match allowable limits. If something looks unclear or inconsistent, they may ask questions at the 341 meeting or request additional information.
To understand how exemptions and assets are reviewed during bankruptcy, consider reading the blog on what assets you can keep in bankruptcy in Indiana. It explains how trustees evaluate property values, which is closely related to how they review financial documents in the means test.

What happens if you do not pass the means test

If the means test shows that you have disposable income left after allowable expenses, you may not qualify for Chapter 7. That does not mean you are without options. It simply means the court believes you may be able to repay some of your debt through a structured repayment plan.
In that case, Chapter 13 may be a workable alternative. Chapter 13 creates a three to five year plan to reorganize your debt while protecting your home and other important property.

Evaluating alternatives with an experienced attorney

Many people discover that Chapter 13 actually works better for their long term goals. For example, if someone has fallen behind on a mortgage or car loan, Chapter 13 gives them time to catch up. To understand this option better, the practice page on Chapter 13 bankruptcy in Indiana explains how repayment plans work in our state.

Special circumstances and exemptions

Even if the means test appears to disqualify you, special circumstances can help. These include unusual medical expenses, natural disasters, or other unavoidable costs. An attorney can explain how these factors apply in Indiana cases.

Steps to take before filing

Preparation makes the means test far easier. Here are useful steps to start with:

• Gather six months of pay stubs: Make sure they include all earnings, bonuses, and overtime.
• Collect bank statements and tax returns: These documents verify income sources and financial activity.
• List all household expenses: Write down housing, food, healthcare, childcare, transportation, and other monthly bills.
• Note changes in income: If you recently lost a job or had hours reduced, bring documentation that explains the shift.

A well prepared file helps your attorney run the test accurately and explain your qualification clearly.

Why choosing the right attorney matters

The means test has details that can affect your case, and small mistakes can change the outcome. A local attorney who handles Indiana bankruptcy cases regularly knows how to apply exemptions, how trustees interpret expenses, and how to present your numbers clearly. For insight into choosing a lawyer, the blog on what qualities to look for in an Indiana bankruptcy lawyer is a helpful guide.

How the means test fits into your larger bankruptcy strategy

The means test is only one part of your case. The full process includes exemptions, asset protection, long term planning, and understanding how bankruptcy will affect your credit and future finances. When all parts fit together with a clear strategy, the process becomes far less stressful.

Understanding the means test is easier with someone who can explain each step in plain language. Brock Legal helps people across Indianapolis and surrounding cities review income, expenses, and long term goals to find the right path forward. Whether you qualify for Chapter 7 or need the structure of Chapter 13, we make sure you know what to expect and how to protect what matters most.
Call 317.505.0336 or email zach@indyfinancelaw.com to schedule a free consultation with an Indianapolis bankruptcy lawyer who can help you understand your options and move toward a fresh start.