If you’ve been researching bankruptcy, you’ve probably already read that Chapter 7 is the faster, simpler option. No repayment plan. No three to five years of monthly payments to a trustee. Just a relatively straightforward process that, in most cases, eliminates the bulk of your unsecured debt in about four months. It’s no wonder that roughly 80% of people who file bankruptcy in Colorado choose Chapter 7. But there’s a catch: not everyone qualifies.
Congress added eligibility requirements back in 2005, and if your income is too high — or more precisely, if you have too much disposable income — you may not be able to file a Chapter 7. You might be directed toward Chapter 13 instead. So how do you know if you qualify? That’s exactly what this article is going to walk you through. We’ll cover the three main ways to qualify for Chapter 7 in Colorado, explain how the means test works, and give you a realistic picture of where most people fall. The short version: the vast majority of people who want to file Chapter 7 are eligible to do so.
The Means Test: What It Is and Why It Exists
Before 2005, there were no income-based restrictions on who could file Chapter 7. If you had debt you couldn’t pay, you could file. Congress changed that with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which introduced what’s known as the means test. The idea was to prevent higher-income filers from using Chapter 7 to wipe out debts they could actually afford to pay back. In practice, the means test is less of an obstacle for most people than it sounds. The vast majority of people who need Chapter 7 bankruptcy relief qualify for it. But it does add a layer of analysis that you need to work through before filing. There are essentially three pathways to Chapter 7 eligibility in Colorado:
- Path 1: Your income is below Colorado’s median income for your household size. You automatically pass.
- Path 2: Your income is above the median, but after deducting your allowed expenses, your disposable income is too low to fund a Chapter 13 plan. You still qualify.
- Path 3: The means test doesn’t apply to you at all because of an exemption. This one applies to a much smaller group of filers.
Let’s walk through each of these in detail.
Path 1: Your Income Is Below the Colorado Median
This is the simplest path. If your household income falls below Colorado’s median income for your household size, you pass the means test automatically. You don’t need to go any further. You don’t need to calculate your expenses or your disposable income. You simply qualify. For cases filed between November 1, 2025 and approximately April 30, 2026, the Colorado median income figures are:
- 1-person household: $85,685
- 2-person household: $109,493
- 3-person household: $127,659
- 4-person household: $152,638
- 5-person household: $163,738
- 6-person household: $174,838
- For each additional person beyond 6: add $11,100
Important note: These figures are updated by the U.S. Trustee Program approximately every six months, in May and November. Always verify the current figures before filing, or ask your attorney to confirm.
Now, how does the court calculate your income for purposes of this comparison? It looks at your average monthly income over the six full calendar months immediately before you file. That number is doubled to arrive at your annualized figure. So if you file in April 2026, the court looks at your income from October 2025 through March 2026.
This six-month look-back period is important for a few reasons. First, it means your income calculation isn’t just your current paycheck. If you had higher income several months ago — a bonus, overtime, or a job you left — it still counts. Second, if your income has recently dropped significantly, you may actually benefit from waiting a month or two before filing, so that your higher-earning months fall outside the six-month window.
What Counts as Income for the Means Test?
Almost everything counts. The means test casts a wide net when it comes to defining income. For purposes of this calculation, income includes:
- Gross wages, salary, tips, bonuses, overtime, and commissions
- Net monthly income from a business, rental property, or farm
- Interest, dividends, and royalties
- Pension and retirement income
- Regular contributions from others toward your household expenses (yes, this includes a partner, roommate, or family member who helps pay the bills)
- Unemployment compensation
- Alimony and maintenance payments received
There is one major and very significant exception: Social Security income does not count toward the means test calculation. This includes Social Security retirement benefits, Social Security Disability Insurance (SSDI), and Supplemental Security Income (SSI). For many retirees and disabled individuals, this exclusion alone puts them comfortably under the income threshold. Disability benefits from the Veteran’s Administration also do not count as income. Also worth knowing: if you are married and filing individually, you generally still have to include your spouse’s income in the means test calculation. However, you can deduct the amount your spouse contributes toward their own separate debts and obligations. This can get complicated, especially in cases where spouses have very different financial situations, so it’s worth going over carefully with your attorney.
Path 2: You’re Over the Median But Still Qualify Through the Full Means Test
Being above the Colorado median income doesn’t automatically disqualify you from Chapter 7. It just means you have to keep going and complete the second part of the means test. The second part allows you to deduct a long list of allowable expenses from your income. If, after those deductions, your disposable income falls below a certain threshold, you still qualify for Chapter 7. The logic here makes sense: if you don’t actually have money left over after paying your necessary expenses, you don’t have the ability to fund a Chapter 13 repayment plan. So what expenses can you deduct? The list is a combination of:
- National Standards set by the IRS: these cover basic living expenses like food, clothing, housekeeping, and personal care. The amounts are fixed based on your household size, not your actual spending.
- Local Standards for housing and utilities: these are based on your county in Colorado and reflect regional costs of living.
- Local Standards for transportation: covering vehicle ownership costs and operating expenses, also set by the IRS.
- Actual expenses in certain categories: including health insurance premiums, term life insurance, childcare, school tuition for private or religious schools (within limits), court-ordered payments like child support and alimony, and mandatory payroll deductions like union dues and retirement contributions required by your employer.
- Secured debt payments: your mortgage payment, car payment, and other payments you’re contractually required to make are deducted dollar for dollar.
- Priority debt payments: things like back taxes, child support arrears, and other obligations that survive bankruptcy and must be paid.
After all of these deductions, you arrive at your monthly disposable income. For cases filed through at least March 2028, the thresholds work like this:
- If your disposable income multiplied by 60 (five years) is less than $9,075, you qualify for Chapter 7.
- If your disposable income multiplied by 60 is more than $15,150, you do not qualify.
- If it falls between those two amounts, you qualify only if your disposable income is less than 25% of your total nonpriority unsecured debt.
These thresholds are adjusted every three years. For the great majority of people who fall above the median, the combination of mortgage payments, car payments, taxes owed, and other legitimate expenses is enough to bring their disposable income below the qualifying threshold. High income alone does not mean you won’t qualify.
What Happens If My Disposable Income Is Too High?
If you run the numbers and your disposable income is too high to qualify for Chapter 7, your case isn’t over. The most common alternative is Chapter 13, which allows you to repay some or all of your debt over a three to five year period rather than eliminating it all at once. Chapter 13 has its own advantages, including the ability to catch up on mortgage arrears to save a home from foreclosure, or to pay back tax debts or other obligations that Chapter 7 wouldn’t eliminate anyway. In some cases, it also makes sense to think about timing. If your income has dropped recently, maybe you changed jobs, got laid off, or a spouse stopped working, waiting a month or two to file can shift your six-month income average downward. This isn’t a trick or an abuse of the system. It’s simply how the means test is designed to work. An experienced bankruptcy attorney can walk you through whether timing your filing differently makes sense in your situation.
Path 3: Exemptions From the Means Test Entirely
For a smaller group of filers, the means test doesn’t apply at all. There are two main exemptions worth knowing about.
Non-Consumer Debtors
If your debts are not primarily consumer debts — meaning the majority of your debt was incurred for business purposes rather than personal or household reasons — then the means test does not apply to you. Business owners who have personally guaranteed business loans, real estate investors with mortgage debt on investment properties, or anyone whose primary debt load is business-related may fall into this category. The determination of what qualifies as “primarily” consumer debt requires looking at the total dollar amounts of your consumer debts versus your business debts. This is a fact-specific analysis, and it’s worth discussing with your attorney if you have a mix of personal and business debt.
Disabled Veterans
If you are a disabled veteran and your debts were incurred primarily while you were on active duty or performing a homeland defense activity, you are exempt from the means test. This exemption exists to protect military members and veterans who may have incurred significant debt in service to the country under circumstances outside their control.
Other Requirements to File Chapter 7
Passing the means test — or being exempt from it — is the primary eligibility hurdle, but there are a few other requirements worth mentioning.
Prior Bankruptcy Filings
If you’ve filed bankruptcy before, there are waiting periods before you can receive another discharge. The most important ones for Chapter 7 filers in Colorado are:
- If you received a Chapter 7 discharge previously, you must wait 8 years from the date of that filing before you can receive another Chapter 7 discharge.
- If you previously filed a Chapter 13 and received a discharge, you must wait 4 years before filing Chapter 7.
- If your previous bankruptcy case was dismissed (as opposed to discharged), you may have to wait 180 days before filing again, depending on the circumstances of the dismissal.
Credit Counseling
Everyone who files bankruptcy in Colorado is required to complete a credit counseling course from an approved agency within the 180 days before filing. This is a short, typically online course that takes about an hour or two to complete. Your attorney can point you to an approved provider.
The Good Faith Requirement
Even if you technically pass the means test, a bankruptcy court can still dismiss a Chapter 7 case if it finds that the filing was made in “bad faith” — for example, if someone took on a large amount of debt immediately before filing with the intent to discharge it, or if other circumstances suggest the case is being used to abuse the bankruptcy process. For the vast majority of people with legitimate financial hardship, this is not a concern.
What About My Assets? Don’t Those Matter Too?
This is an important question, and the answer is: yes, assets matter, but not for determining whether you qualify to file. Your assets matter for determining what you might have to surrender to the bankruptcy trustee. In Chapter 7, any assets you have that are worth more than the protected amounts under Colorado’s bankruptcy exemptions can potentially be liquidated by the trustee to pay your creditors. Colorado has a set of exemptions that protect certain property, including equity in your home, equity in your car, retirement accounts, household goods, and more, up to specified dollar amounts. The good news is that 85% to 90% of Chapter 7 filers in Colorado don’t lose any assets at all.
Colorado’s exemptions are reasonably generous, and most people’s assets, a home with modest equity, one or two vehicles, retirement savings, ordinary household belongings, are fully protected. Your attorney will go over your assets carefully at your initial consultation to flag anything that might be at risk. If you have an asset that significantly exceeds the available exemption, you may still choose to file Chapter 7, but you’ll need to weigh whether the value of eliminating your debts outweighs the cost of potentially surrendering that asset. Sometimes it does. Other times, a Chapter 13 may be a better fit because it lets you keep assets that would be at risk in a Chapter 7.
Most People Who Need Chapter 7 Qualify for It
If there’s one thing we want you to take away from this article, it’s this: the means test sounds intimidating, but most people who genuinely need Chapter 7 bankruptcy relief are able to qualify for it. Colorado has a wide range of household income levels, and the median income figures (updated regularly to reflect actual wage data) are designed to capture a realistic picture of what Colorado families earn. For filers below the median, it’s automatic.
For filers above the median, the expense deductions built into the second part of the means test are often enough to bring their disposable income to a qualifying level. The people who tend to struggle most with the means test are those with genuinely high incomes who have kept up with their obligations but are facing a crisis, such as a business failure, a divorce, or a sudden downturn. For those filers, Chapter 13 is usually still a viable path forward, even if Chapter 7 isn’t available.
Schedule a Free Consultation with a Denver, Colorado Bankruptcy Attorney
If you’re wondering whether you qualify for Chapter 7 bankruptcy in Colorado, the best thing you can do is sit down with an experienced bankruptcy attorney for a free consultation. We’ll go over your income, your household size, your expenses, and your assets to give you a clear, honest answer about whether Chapter 7 is right for you, and if not, what your other options look like. We offer free consultations to individuals who want to learn more about the Colorado bankruptcy process. During your consultation, you’ll meet with an experienced bankruptcy attorney. The easiest way to make an appointment for a free consultation is by going to our scheduling page. Check out our client reviews on Google, Facebook, and Avvo! Common Bankruptcy Questions
