Tariff Inflation and the Chapter 7 Bankruptcy Means Test Gap

The “Means Test” (Form 122A) is often called the gatekeeper of Chapter 7 bankruptcy. It was designed to ensure that only those who truly lack the “means” to repay their creditors can receive a discharge. However, Congress’s intent was to make qualifying for Chapter 7 bankruptcy more difficult, forcing debtors into Chapter 13. However, in early 2026, we are witnessing a systemic glitch: the math is broke,n and it doesn’t favor debtors.

Understanding the “Means Test” is critical, and as I have always stated, bankruptcy isn’t just about completing forms; it’s about strategy and seeing the issues. As a law professor who focuses on bankruptcy and consumer protection law, I’ve seen how the slightest changes in figures can affect a bankruptcy filing.

Now, with these delays, that could result in forcing a debtor into a lengthy three to five year Chapter 13 plan, when they could have qualified for Chapter 7 bankruptcy and begin their fresh start in a few short months.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Takeaways: The 2026 Tariff Inflation Trap Affecting the Means Test

• The Gap Crisis with the Means Test: For the first time in over a decade, the IRS has postponed its National Standard updates until June 2026. This means every Chapter 7 filed today is being judged by “frozen” financial data from April 2025.
• A Non-Existent Surplus: Even with stagnant wages, debtors are being flagged for a “presumption of abuse” because the 2026 tariff-driven price hikes aren’t factored in.
• The Threat to Chapter 7: This data lag is effectively “bumping” eligible, struggling families into five-year Chapter 13 plans they are statistically likely to fail, simply because the IRS National Standards haven’t been updated.

The Lagging Standard Problem

The Means Test doesn’t care what you actually spend on groceries or clothes. Instead, it uses IRS National Standards for “Food, Clothing, and Other Items.” For example, even if you spend $100 on food, but the IRS National Standards state it’s $150, you can go with the higher figure for purposes of the Means Test. This, of course, helps debtors.

However, as of February 2026, the IRS has announced a delay in updating these standards until June, meaning we are still using data from April 2025. In a stable economy, a one-year lag is a minor inconvenience. In a 2026 economy, where targeted tariffs have spiked the cost of household goods, electronics, and apparel by an effective 13% to 19%, approximately $1,000, that lag is a catastrophe.

The Paper Surplus vs. the Real-World Deficit

When I review a debtor’s “Schedule J” (actual expenses) versus the “Means Test” allowances, the disparity is clear.

The Means Test Assumption: A family of four is allowed roughly $1,531 for food and clothing monthly.

The 2026 Reality: Between the 11% rise in tariffed import prices and the resulting 2.5% climb in domestic goods, that same family is now spending closer to $1,750 just to maintain the same standard of living.

Because the Bankruptcy Code forces us to use the lower, outdated IRS number on the Means Test, there’s a “surplus” on paper. The math suggests the debtor has $200 in “disposable income” to pay credit cards, when in reality, that money was swallowed by a weekly grocery run.

The Six-Month Lookback Glitch of the Means Test

Furthermore, the “Current Monthly Income” (CMI) is calculated using a six-month lookback. If a debtor’s wages haven’t increased, their income stays flat, but their buying power is shrinking. In a world of 2026 tariff spikes, $3,000 a month simply doesn’t buy what it did in 2024.

This would result in an increase in “Presumption of Abuse” filings because the Bankruptcy Code’s formulas are currently “frozen” in the past. While the price of groceries and household goods has jumped significantly, means testing would show a non-existent surplus. Now you understand why the “Means Test” has been heavily criticized, especially when you consider it only applies to consumers, not businesses.

Professor’s Note: The income figures for the Means Test and Current Monthly Income are updated twice a year. The latest figures can be found in this recent article.

The Professor’s Conclusion

We are at a point where “Special Circumstances” (under § 707(b)(2)(B)) could be argued, but it’s also a risk, as there’s no denying that some bankruptcy judges are pro-debtor while others aren’t. That risk means having to file Chapter 13 bankruptcy, which may be the debtor can’t afford, especially since the difference in attorney’s fees will be several thousand dollars.

Granted, as I have mentioned before regarding tax refunds in Chapter 7 and 13 cases, a debtor could simply delay filing until the IRS figures are updated; however, if a lawsuit is pending or imminent, a debtor needs the protection of the automatic stay. Worst-case scenario, Chapter 13 can be filed initially, then converted to Chapter 7 bankruptcy.

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You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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