The Colorado bankruptcy means test, explained

Many capable, hardworking people assume Chapter 7 is off the table because of the means test. They earn a decent salary, they have seen a number online, and they conclude they make too much. If that is where you are, I understand how discouraging it is to be struggling with debt and believe you earn too much for help. Sometimes that conclusion is right. Often it is not, because the means test is not a glance at a pay stub. It is a specific calculation with specific inputs, and the inputs matter more than the salary.

This is how it works, step by step, for someone filing in the District of Colorado. It is general information, not advice about your case, and every case turns on its facts.

What is the bankruptcy means test?

The means test is a two part calculation in 11 U.S.C. § 707(b) that decides whether filing Chapter 7 would be presumed an abuse of the bankruptcy system. Congress added it in 2005. It applies only when your debts are primarily consumer debts, meaning debts incurred for personal, family, or household purposes rather than a business. If most of what you owe came from a business that failed, the means test may not apply to you at all.

The calculation is done on an official court form, Official Form 122A for Chapter 7 and Official Form 122C for Chapter 13, and it is filed with your petition. The U.S. Trustee Program, the part of the Department of Justice that oversees bankruptcy cases, reviews it. For above median filers, the U.S. Trustee is required to state whether the presumption of abuse arises, so this is a document someone actually checks.

What counts as current monthly income?

Current monthly income is the average of your gross income from all sources during the six full calendar months before the month you file. It is defined in 11 U.S.C. § 101(10A). If you file on October 15, the six months are April 1 through September 30. October does not count, and neither does March.

It is gross, not take home, and it is broader than most people expect. It includes income whether or not it is taxable. What goes in and what stays out:

A spouse who is not filing is the part that surprises people. If you are married and file alone, your spouse's income still goes on the form. You then subtract, through what is called the marital adjustment, the portion of that income that does not go to your household's expenses, such as your spouse's own separate debt payments. That adjustment can make a real difference, and it is often done carelessly.

How does my income compare to the Colorado median?

You multiply current monthly income by twelve and compare the result to the median family income for Colorado for a household your size. The U.S. Trustee Program publishes those medians from Census Bureau data at justice.gov/ust/means-testing and updates them periodically. The table in effect on the day you file is the one that applies.

If your annualized income is at or below the median for your household size, you pass. The statute includes a safe harbor at § 707(b)(7): below median filers cannot face a motion to dismiss based on the means test presumption. You skip the second part of the form entirely.

How is household size decided?

Household size is a real question with a real answer, and it is not always the number of people you claim on your tax return. The Bankruptcy Code does not define household. Courts around the country have used at least three approaches: counting the people who actually live in the home, following the IRS dependent rules, and looking at the economic unit, meaning the people whose income and expenses are genuinely intertwined.

The situations where it matters are the ordinary ones. Shared custody, where a child lives with you part of the month. An adult child who moved home and contributes some rent. A parent you support who lives with you. A partner you are not married to. Each additional person raises the median you are measured against by thousands of dollars, and it also affects the expense allowances in the second part of the test. I work out household size from the facts and choose an approach I can defend, rather than defaulting to whatever number is easiest.

What happens in the second part of the means test?

If you are above the median, the form subtracts allowed monthly expenses from your current monthly income to find your monthly disposable income, then asks whether that number is large enough to presume abuse. The expenses come from several sources.

1. IRS National Standards for food, clothing, housekeeping supplies, personal care, and miscellaneous items, plus out of pocket health care, set by household size regardless of what you actually spend.
2. IRS Local Standards for housing and utilities, set by county, and for vehicle ownership and operating costs, set by region. Colorado counties have different figures, so Denver and Larimer County do not produce the same allowance.
3. Actual expenses in categories the statute allows: taxes, mandatory payroll deductions, health insurance, term life insurance, court ordered support, necessary childcare, and some others.
4. Secured debt payments: the total of payments contractually due on your mortgage, car loans, and other secured debts over the 60 months after filing, divided by 60.
5. Priority debt, such as recent income taxes and past due support, divided by 60.
6. An allowance for what a Chapter 13 trustee would charge if you were in a Chapter 13 instead.

Whatever is left is your monthly disposable income under the means test. The presumption of abuse turns on that number multiplied by 60. Under the amounts in effect for cases filed on or after April 1, 2025, there is no presumption if 60 months of disposable income is less than $10,275. The presumption arises if it is $17,150 or more. In between, the presumption arises only if 60 months of disposable income would pay at least 25 percent of your nonpriority unsecured debt, which is the credit cards, medical bills, and personal loans.

A presumption of abuse is not the end of the conversation. You can rebut it by showing special circumstances, such as a serious medical condition, that justify additional expenses or adjustments to income. And separately, even a person who passes can have a case challenged under § 707(b)(3) if the overall picture looks like bad faith, so the numbers on the form need to match your actual circumstances.

Does it matter when I file?

Yes, sometimes a great deal. Because the lookback window is the six full calendar months before the filing month, the date you file decides which paychecks count. A person who received a large bonus in March and files in October has a lookback window of April through September, and the bonus is not in it. The same person filing in August would carry that bonus into the average.

The same logic applies to a job loss, a pay cut, a period of unemployment, or a new job that started at a higher salary. The means test measures the recent past, not your current reality, and sometimes the two are far apart. Waiting a month or two can change the result. Sometimes filing sooner is what changes it. This is one of the most useful things I do before a case is filed, and it has to be weighed against whatever else is happening, like a garnishment or a lawsuit that makes waiting expensive.

Why do people above the median often still qualify for Chapter 7?

Because the second part of the test allows real expenses that a salary number ignores. A household with a mortgage, two car payments, childcare, health insurance through an employer, and back taxes can have a substantial gross income and very little disposable income once the form is done correctly. The secured debt deduction alone is often the difference, since it counts the full contractual payment on a house or car you are keeping.

The other reason is care. Current monthly income can be overstated when a bonus lands in the window by accident, when a spouse's income is counted without a proper marital adjustment, or when household size is set too low. Allowed expenses can be understated when someone uses what they think they spend instead of the standard they are entitled to. I work this calculation carefully, line by line, from the actual documents, rather than taking a pay stub glance and telling you what bracket you are in.

What happens if I do not pass the means test?

If the presumption of abuse applies and cannot be rebutted, Chapter 7 is generally not available, and Chapter 13 is the usual path. In a Chapter 13 you pay a monthly amount to a trustee under a court approved plan, and at the end the remaining qualifying debt is discharged.

Your income relative to the median also sets the length of that plan, called the applicable commitment period, under 11 U.S.C. § 1325(b)(4). Below median, the commitment period is three years. Above median, it is five years, unless the plan pays unsecured creditors in full sooner. The same form, Official Form 122C, calculates how much disposable income an above median filer must commit to the plan, using expense rules similar to the Chapter 7 means test.

Chapter 13 is not a lesser option. For someone behind on a mortgage, with tax debt, or with property a Chapter 7 would not protect, it can be the better fit even when Chapter 7 is available. I have written more about that in high income bankruptcy and Chapter 13, and about what Colorado lets you keep in Colorado bankruptcy exemptions.

What should I gather before the means test is run?

The calculation is only as good as the documents behind it. The core set:

• Every pay stub for you and any spouse from the six full calendar months before the month you expect to file, and a little beyond, since the filing date may move.
• Records of any other income in that window: rental income, side work, support received, unemployment, and regular help from family.
• Your most recent tax returns.
• Statements for every secured debt, showing the monthly payment and remaining term.
• Any tax balances owed and any support arrears.
• Health insurance, childcare, and other recurring expenses the form allows.

If you are wondering whether you qualify, the honest answer is that it depends on numbers you probably have not assembled yet, and that is a perfectly ordinary place to start. There is no judgment here about how you got to this point. Running the means test with you, and deciding together when to file, is a central part of the Strategy Session. You can read about how I work or reach me here whenever you are ready. I would be glad to hear from you.