The Bankruptcy Means Test in Colorado
A common assumption about bankruptcy is that earning above a certain income makes you ineligible to pursue it — but that’s not accurate. The means test determines whether you qualify for Chapter 7 bankruptcy, which allows debts to be liquidated entirely. For other cases, you may be required to pay creditors a portion of what is owed based on your ability to pay.
The federal means test serves as a starting point in distinguishing whether someone with consumer debt can pursue Chapter 7 bankruptcy or must pursue a Chapter 13 bankruptcy instead. In some instances, a person who primarily carries business-related debt, or a qualifying veteran, can be exempt from the means test altogether.
Determining Which Form of Bankruptcy is Appropriate
The means test starts by analyzing your income in the six months prior to pursuing bankruptcy. If the average gross income (before taxes and deductions) for those six months exceeds Colorado’s median income, you move forward to the next step of the means test, which requires listing your monthly living expenses and deducting that figure from your income.
Our attorneys will help you perform both stages of the means test. To give you a starting point, compare your household income to the median income for Colorado:
| Household Size | Median Income |
|---|---|
| 1 Earner | $67,768 |
| 2 Earners | $88,178 |
| 3 Earners | $96,223 |
| 4 Earners | $115,473 |
- Add $9,000 for each earner over 4
Colorado’s median income thresholds are periodically updated by the U.S. Trustee Program. An attorney at Moorhead Law Group can confirm the figures that apply at the time you pursue your case.
Income Comparison: The First Step
Colorado’s median income thresholds are based on household size, and the six-month look-back period used to calculate your average monthly income has specific rules about what counts. Wages, salary, self-employment income, rental income, and regular contributions from others are generally counted, though certain types — Social Security benefits, for example — are excluded from the calculation. Getting the income figure right at this stage directly affects everything that follows, and errors here can produce an incorrect test result.
Allowable Expense Deductions: The Second Step
If your income exceeds the median, the second part of the means test calculates your monthly disposable income by deducting allowable living expenses from your average monthly income. A number of these deductions are based on IRS national and local standards for housing, transportation, food, clothing, and healthcare — rather than your actual spending. Additional deductions may apply for secured debt payments like a mortgage or car loan, and certain priority debts.
Whether you pass the second part of the means test can depend significantly on how expenses are categorized and documented. A bankruptcy attorney can identify every applicable deduction, which can determine whether you qualify for Chapter 7 or are directed toward Chapter 13.
Who Is Exempt from the Bankruptcy Means Test
Not everyone is required to complete the means test. Two groups are typically exempt:
- Disabled veterans whose debt was incurred primarily during active-duty service, or while performing a homeland defense activity, may be exempt from the means test entirely.
- Filers with primarily non-consumer debt — meaning business-related debt — may not be required to complete the means test at all.
If you fall into one of these categories, pursuing Chapter 7 may be more straightforward, but the specifics of your situation still warrant a review with an attorney before proceeding.
Means Test Outcomes: Chapter 7 vs. Chapter 13
Passing the means test allows you to move forward with Chapter 7, which discharges most unsecured debts — credit cards, medical bills, personal loans — without a repayment plan. Not passing the means test does not close the door on bankruptcy; it typically means Chapter 13 is the more appropriate path.
Chapter 13 allows you to restructure your debt into a three- to five-year repayment plan based on your disposable income, after which remaining eligible balances may be discharged. For people with a stable income who want to retain assets like a home or vehicle, Chapter 13 offers protections that Chapter 7 does not. Knowing which chapter fits your situation before you start the process can save significant time and prevent costly missteps along the way.
Working with a Colorado Bankruptcy Attorney
A knowledgeable Colorado bankruptcy attorney can assist you in determining your standing regarding the means test — whether you pass or do not pass — and which bankruptcy chapters are available given your circumstances. Our attorneys can provide a depth of knowledge of the bankruptcy code that goes well beyond calculating income and expenses.
Your attorney can guide you through all the steps, explain any complexities, prevent time-consuming mistakes, answer your questions, and make sure your forms are completed correctly and submitted on time. A process that would otherwise feel overwhelming becomes manageable with the right guidance.
Pursuing bankruptcy may feel like a significant step, but when handled correctly, the outcome can bring real relief — knowing you will no longer be pursued by creditors or weighed down by debt that keeps growing. Contact the bankruptcy attorneys at The Moorhead Law Group to get started.