Cunningham, Chernicoff & Warshawsky, P.C.

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As of May 29, 2020, Dauphin County, where our office is located, has moved from Red to Yellow status. Our office will re-open on June 1, 2020. Until further notice, Stay Safe Guidelines will be followed, including safe social distancing (6 feet), cleaning after each client and the wearing of masks by employees and clients at all times while in our office. People who are ill and those without masks will not be permitted entry into our office.

Taking the Chapter 7 bankruptcy means test

Congress made it more difficult to obtain a Chapter 7 bankruptcy in 2005 when it introduced a means test as part of the Bankruptcy Abuse Prevention and Consumer Protection Act. The test is designed to make sure that Chapter 7 bankruptcies are only granted to individuals in Pennsylvania and around the country who do not earn enough to pay back at least some of the money they owe to their creditors.

Lenders and companies that offer alternative forms of debt relief often portray the means test as being extremely strict and nearly impossible to pass, but this is just one of the many myths surrounding bankruptcy. In reality, the vast majority of people who take the means test pass it with ease.

Part one of the means test

The first part of the means test compares the petitioner’s income with the median income in their state for a family of the same size. Median income is not an average but a middle point. A family of four would earn the median income if half of the families of the same size in their state earned more than them and the other half earned less. In April 2021, the median household incomes in Pennsylvania were $57,919 for a one-person household, $71,448 for a household of two, $88,293 for a three-person household and $105,138 for a family of four. These amounts are updated several times each year by the U.S. Census Bureau. Petitioners who earn less than the median income in their state for a family of the same size pass the means test automatically.

More about the means test

Those who earn more than the median income may still be able to file Chapter 7 bankruptcies if they do not have enough disposable income to pay back at least a quarter of their unsecured debt over a period of five years. Expenses that are deducted to determine the petitioner’s disposable income include mortgage and car payments, health care costs, transportation expenses, food and clothing bills and the administrative fees the petitioner would have to pay if they filed a Chapter 13 bankruptcy. Some of these expenses are based on standards provided by the Internal Revenue Service rather than the amounts the petitioner actually pays.

Help with the bankruptcy means test

Attorneys with debt relief experience may help individuals to prepare for the means test by explaining the steps involved and analyzing their incomes and expenses. Attorneys could also ensure that allowable expenses like life insurance premiums, vocational training costs and charitable contributions are included in means test calculations.