What is the means test for Chapter 7 bankruptcy?

Are you concerned you earn too much money to file Chapter 7 bankruptcy? Calculating your income via the means test isn't straightforward.
Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

Are you concerned you earn too much money to file Chapter 7 bankruptcy? Calculating your income via the means test isn't straightforward.
Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

Today is the day.

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You might have heard of the “means test,” which determines whether you are “eligible” to file for relief under Chapter 7.

If it sounds scary, that’s because that was the intent of the banking and credit card lobby, which persuaded Congress to pass the means test in 2005 as a tool to prevent bankruptcy abuse.  The reality is that the means simply makes it more complicated to file bankruptcy and does very little to prevent bankruptcy abuse.

How does the means test work?

To calculate your income compared to the state median income:

  1. Take your average income for the past six months, and then annualize it. (If you came up with $3000/month, then multiply by 12 to get $36,000.)
  2. If your annualized income is less than or equal to the Pennsylvania state median income ($57,919.00), which is used by the bankruptcy court, then you “pass” on the first try and can file Chapter 7.
  3. If your income is higher than the Pennsylvania state median income ($57,919.00), don’t give up just yet. There is another, more complicated calculation which combines your real and “standardized” expenses. You can still pass if your “disposable” income, according to the calculation determined by Congress, leaves you too little money left over to pay on your debts in a meaningful way.

Pennsylvania Means Test Chart

Here’s the means test chart for Pennsylvanians, as of 2022:

 1 Person2 People3 People4 People
Pennsylvania$57,919$71,448$88,293$105,138

What if my income is above the median?

If your income exceeds the Pennsylvania state median income ($57,919.00), you (ideally your attorney) just need to do some more figuring, looking at your calculated ability to fund a Chapter 13 repayment plan.

Your disposable income is calculated by applying a mix of actual and standardized expenses, in the future, to your PREVIOUS average income. (What? Right, we know.) There’s an official form to help with these calculations.

If you can pay $13,650 in five years, or as little as $227/month to your creditors, the court may presume that a Chapter 7 filing is “abusive.”

You can argue against this presumption by presenting additional facts and circumstances. One obvious example of a special circumstance is that you are now unemployed, and therefore can’t pay what the artificial means test suggests.

What if I don’t pass the means test?

If you don’t pass the means test, it simply means that you can’t file Chapter 7 right now. You can file Chapter 13 instead, which is a reorganization of your debts.

I would caution you against trying to run the calculations yourself, using online calculators and forms. The means test is notoriously tricky and counterintuitive.

Where can I get help with these calculations?

Don’t panic – an experienced bankruptcy attorney can perform these calculations and let you know exactly where you stand relative to the means test. It’s free to chat with me about your options – you can call or text me at 215.551.7109, or drop me a line.

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