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What is a Means Test, and How Might it Apply to My PA Bankruptcy?

17 May 2019, by Brandy Benefield in Bankruptcy
Couple doing paperwork wondering if they'll pass a bankruptcy means test

Written by Timothy Czekaj

If you’re considering filing for bankruptcy, be prepared to take the means test. This test partially determines your eligibility to have debt forgiven through a Chapter 7 bankruptcy. It looks at your monthly income and compares it to the median monthly incomes for households of the same size in Pennsylvania. If your income is higher than the median, you must go through a more in-depth analysis to determine whether you qualify. If your income is lower than the median, you have passed the first test to determine eligibility for Chapter 7 bankruptcy.

Filing for bankruptcy can be challenging and complicated. Our skilled attorney at Czekaj Law, LLC have helped many people make it to the other side of bankruptcy and back to financial stability. To schedule a free consultation of your case with an experienced Pennsylvania bankruptcy attorney, call us today at (717) 275-9770, or reach out through the online form.

Chapter 7 Bankruptcy & the Means Test

Chapter 7 bankruptcy, or liquidation bankruptcy, forgives most unsecured debt, such as credit card bills, personal loans, and medical bills. It is also a relatively quick and easy bankruptcy process, possibly taking three to five months to complete – depending on your situation. For these reasons, it is a popular form of bankruptcy for many people trying to get out from under a mountain of bills.

To qualify for Chapter 7 bankruptcy, you must fill out the applicable forms and show proof of your income over the past six months. This includes wages, interest and dividends, pensions, retirement plans, and other income you may have. If you are below the median income in the Commonwealth for a household of your size, you can proceed to the next step in the analysis on the road to filing a Chapter 7 bankruptcy.

If you are over the median income, then you will have to supply more information to the court. This information includes a more detailed breakdown of your incomes and expenses. The goal is to determine if your expenses are allowable expenses and still leave you with little disposable income, or if you have an excess disposable income that would make you ineligible for a Chapter 7 bankruptcy. Allowable expenses typically include things like food, housing costs, medical expenses, clothes, and other necessities up to a certain ceiling amount. Disposable income is everything you have left after paying for these necessities that could be used to pay your debts. If there is too much disposable income left, you won’t qualify.

What About Chapter 13 Bankruptcy?

If you can’t pass the means test for Chapter 7, you might still qualify to pay your debts off through the Chapter 13 bankruptcy process. This process may not wipe out your unsecured debt completely; rather, it will restructure debt into a more manageable repayment plan over three to five years. After that time, your debt is either paid off, or the remainder is discharged. Your debt repayment plan will be under federal court protections, which means aggressive creditors can’t keep hounding you to collect the debt. Many people end up paying back cents on the dollar in a Chapter 13 payment plan, so it can still provide much-needed relief in the proper circumstances.

Contact a Pennsylvania Bankruptcy Attorney

While Chapter 7 bankruptcy seems like an attractive option, it isn’t for everyone. It can negatively affect your credit status far into the future. Although a rare occurrence, you may also risk losing assets such as your home, car, and other items if items are not properly disclosed, or are worth more than a particular exemption allows. In some cases, Chapter 13 may be a better option depending for your particular situation.

Bankruptcy is a highly complex and technical area of law. If you are considering bankruptcy, it is imperative that you consult with a bankruptcy attorney to ensure a safe, streamlined process.

At Czekaj Law, LLC, our experienced bankruptcy lawyers can discuss the different options available to you and answer any questions you may have. To schedule a free consultation of your case, contact us today at (717) 275-9770.

This office is a debt relief agency helping people to file bankruptcy under the U.S. Bankruptcy Code.