Thinking Outside The Box Law: Why Failing the Means Test Is Your First Big Win In Beating Tax Debt

What is the Means Test?

The means test was introduced with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), and was designed to weed out high-income earners presumed to be abusing Chapter 7.

Here’s how it works:

Step 1: Income comparison: Your average monthly income over the last six months is compared to your state’s median income for your household size. If you’re below that median, you pass automatically.

Step 2: Disposable income calculation: If you’re above the median, we analyze your disposable income by deducting allowable expenses using IRS standards and certain actual costs.

But here’s the twist most people don’t know: you might not even have to take the test at all.

When you’re off the hook 

There are powerful exemptions baked into the Bankruptcy Code—and if you qualify for one, you don’t have to jump through the means test hoops.

• The Non-Consumer Debt Exemption: If more than 50% of your debt is business-related—think personal guarantees on vendor accounts, SBA loans, investment property mortgages, or even certain types of tax debt—you are flat-out exempt from the means test.
• Military Service Exemption: If you’re a disabled vet (rated at least 30% by the VA) and your debt was incurred during active duty or homeland defense, you may also be exempt. Even if you’re not a vet, active duty service of 90+ days within the last 540 days? Same deal. No test. Just eligibility—if you know how to claim it properly.

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