Taking the Mystery and Mean Away From the Bankruptcy Means Test

Means Test and Chapter 7 Bankruptcy

It Has Never Been Easier to Determine Whether You Qualify for Relief Under Chapter 7 of the United States Bankruptcy Code in Pittsburgh.

Means TestIn 2005, Congress put in place very substantial changes to the United States Bankruptcy Code through an amendment known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).  The BAPCPA amendments set new requirements for eligibility to be a debtor under chapter 7 of the Bankruptcy Code and to receive a discharge under chapter 7.  Importantly, debtors must now undergo a means test if their income exceeds the then-applicable median income for consumers of debtors’ household size in the state in which they reside.

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Eligibility for Chapter 7 Bankruptcy – Median Income Analysis

Debtors whose income does not exceed the relevant median income need not undergo further means testing.  Median incomes information is calculated and published by the United States Census Bureau and median income data is adjusted periodically.  The Office of the United States Trustee publishes median income information on its website.  As of the date of this entry, the median income applicable to debtors in the Commonwealth of Pennsylvania with a household size of one is $50,501.  A household of two in Pennsylvania can earn up to $60,508 without further means test analysis.  A three-person family in Pennsylvania has a median income of $74,083.  With four people the Pennsylvania median income is $89,690 and increases by $8,400 for each additional member of the household.
Median Household Income in the United States: 2015

[Source: U.S. Census Bureau]

The Bankruptcy Means Test Exception Applicable to People with Primarily Business Debts

Individuals whose debts are primarily business debts are excused from the means testing analysis.  The means test analysis under section 707(b) of the Bankruptcy Code applies to individual debtors whose debts are primarily consumer debts.  A Pittsburgh bankruptcy lawyer will be able to help you make the determination of whether your debts are primarily consumer debts or whether you may be exempt from further means testing because of the primary nature of your indebtedness.

The Chapter 7 Means Test and the Presumption of Abuse

The chapter 7 bankruptcy means test is codified in section 707 of the Bankruptcy Code and individual chapter 7 bankruptcy debtors in Pittsburgh and throughout the United States must submit an Official Form 122A-1, Chapter 7 Statement of Your Current Monthly Income.  Debtors must disclose information relevant to their income and household size to determine whether they need to complete the means test.  The means test itself is incorporated into Official Form 122A-2, Chapter 7 Means Test Calculation.  Debtors must draw income data for the means test from the income during the six-month period preceding the filing of their bankruptcy cases.  The Bankruptcy Code permits debtors to subtract from their household any portion of the income of a non-filing spouse that is not dedicated to the payment of household expenses or expenses of debtors’ dependents.  The means test also provides that certain expenses be deducted from a debtor’s adjusted current monthly income to determine monthly disposable income.  That monthly disposable income is then multiplied by 60 to determine a debtor’s five-year disposable income.  If a debtor’s disposable income over five years is less than a certain threshold value (currently $7,700), then the presumption of abuse does not arise.  If the five-year income exceeds the threshold value and a cap value (currently $12,850), then the presumption of abuse arises but the debtor may still elect to complete a statement of special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.  A showing of special circumstances may justify continued eligibility for relief under chapter 7.  If a debtor’s five-year disposable income is between the threshold and cap values, the presumption of abuse will not arise unless the five-year disposable income is at least 25% of the debtor’s total nonpriority unsecured debt.

Close Call on the Means Test?  Discuss it with a Pittsburgh Bankruptcy Lawyer!

The increase in the administrative cost and duration of a chapter 13 bankruptcy case from a chapter 7 bankruptcy case is considerable.  In many cases a chapter 13 bankruptcy may be warranted but for other individuals a fresh start under chapter 7 of the Bankruptcy Code will offer the optimal path away from financial distress.  A free consultation with a Pittsburgh bankruptcy attorney could help you understand all of your bankruptcy nonbankruptcy options before making any decision.

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