The Bankruptcy Means Test: Are You Eligible for Chapter 7 Bankruptcy?

The bankruptcy “means test” determines whether you are eligible to file Chapter 7 bankruptcy.  The purpose of the means test is to determine who can file for Chapter 7 relief (which requires no payments to creditors as long as assets are all exempt), and who needs to file for Chapter 13 bankruptcy (which requires a small repayment to creditors for 36 to 60 months).  The following table provides the median family income in Pennsylvania for cases filed On or After November 1, 2016:

Individual           Family of 2           Family of 3           Family of 4

  $50,501                $60,508                $74,083                  $89,690

*For each additional family member over four, add $8,400. Click here for the current Pennsylvania median.

Why is the state median important?

Debtor’s with income below $50,501  for a household of one (“1”) will typically be able to file for Chapter 7 relief without any problems because they are considered to be below the Pennsylvania state median income. Simple.  On the other hand, Debtor’s with an annual income above the Pennsylvania state median income of $50,501 for a household of one (“1”) are classified as above income debtors and they will be required to complete the “means test” to determine if they qualify for Chapter 7.

What are the exceptions to the Rule?

Above median income debtors can still qualify for Chapter 7 relief even if their income exceeds $50,501 for a household of one (“1”); or even $89,690 for a household of four (“4”) people. How? Simple, the means test permits certain allowable monthly expenses, such as a first mortgage payment; second mortgage payment; first car payment; second car payment; health insurance; life insurance; charitable donations; and many, many more allowable expenses.  

The key to the means test is to seek professional advice on how to master the means test!!!

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