The Chapter 7 Means Test in Pennsylvania: How It Works

Before you can file for Chapter 7 bankruptcy, you need to pass what is called the means test. Congress introduced this test in 2005 to make sure Chapter 7 is reserved for people who genuinely cannot afford to repay their debts. If your income is too high relative to your household size, you may be directed toward Chapter 13 instead.

At our Pittsburgh office, the means test is one of the first things we evaluate when someone comes in for a consultation. The calculation can seem intimidating on paper, but the basic idea is fairly straightforward. Here is how it works and what you should know before you start worrying about whether you qualify.

Step One: Compare Your Income to the State Median

The means test starts with a simple comparison. You add up all of your gross income from the six full calendar months before your filing date. This includes wages, salary, tips, bonuses, overtime, rental income, business income, pension payments, and most other regular sources of money. Social Security benefits are excluded from this calculation.

Once you have that six-month total, you multiply it by two to get an annualized income figure. That number is then compared to the median income for a household of your size in Pennsylvania. The U.S. Census Bureau publishes these figures, and they get updated periodically.

For example, a single filer in Pennsylvania would compare their annualized income to the state median for a one-person household. A married couple with two children would use the four-person household median. If your annualized income falls below the median for your household size, you pass the means test automatically. You do not need to go any further in the calculation.

A significant number of the people who walk through our door pass at this first step. If you have been dealing with job loss, reduced hours, or medical issues that cut into your earning ability, there is a good chance your income is already below the median.

Step Two: The Full Means Test Calculation

If your income is above the state median, that does not mean you are disqualified from Chapter 7. It just means you move on to the second part of the test, which takes your allowable expenses into account.

The full calculation uses a combination of your actual expenses and standardized expense amounts set by the IRS. These standardized amounts cover things like housing, transportation, food, clothing, and personal care. You also get to deduct certain actual expenses, including required payroll deductions, health insurance premiums, court-ordered payments like child support, childcare costs, and ongoing contributions to the care of elderly or disabled family members.

After subtracting all of these allowable expenses from your income, the test determines your monthly disposable income. If that disposable income is low enough, you still qualify for Chapter 7. If it is above a certain threshold, the presumption is that you have enough disposable income to fund a Chapter 13 repayment plan and should pursue that option instead.

Common Deductions That Help Pennsylvania Filers

People are sometimes surprised at how many deductions the means test allows. Here are some that frequently make a difference for our clients in the Pittsburgh area:

Mortgage or rent payments. Your actual housing costs are factored in. If you live in Allegheny County or the surrounding suburbs where housing costs have risen in recent years, this deduction can be substantial.

Vehicle ownership and operating costs. If you have car payments and need your vehicle for work, both the ownership cost and a standardized operating cost are deductible. Two-car households get deductions for both vehicles.

Health insurance and out-of-pocket medical expenses. Premiums for health, dental, and vision insurance are deductible. If you have ongoing medical costs above the standard allowance, those additional amounts can be deducted as well.

Tax obligations. Income taxes, self-employment taxes, and mandatory payroll deductions all reduce your disposable income for means test purposes.

Secured debt payments. If you are making payments on a car loan, mortgage, or other secured debt that you intend to keep paying, those payments are deducted from your income in the calculation.

What Happens If You Do Not Pass

Failing the means test does not leave you without options. The most common alternative is filing under Chapter 13 bankruptcy, which allows you to restructure your debts into a manageable repayment plan over three to five years. Many people actually prefer Chapter 13 because it lets them catch up on mortgage arrears and keep assets they might otherwise lose.

There are also special circumstances that can overcome a means test failure. If your debt is primarily business debt rather than consumer debt, the means test does not apply at all. Additionally, if you can demonstrate special circumstances that justify additional expenses or adjustments to income, you may be able to rebut the presumption of abuse even with above-median income.

Military veterans and active duty service members may qualify for exemptions from the means test as well. If you served on active duty or in a homeland defense activity for at least 540 days, you may be exempt.

Why Timing Matters

Because the means test looks at your income over the six months before you file, the timing of your bankruptcy filing can make a real difference. If you lost your job three months ago but were earning a high salary before that, your six-month average might still be above the median. Waiting another month or two could shift the calculation in your favor as those higher-earning months drop out of the window.

Similarly, if you received a large bonus, tax refund, or settlement during the look-back period, that could push your average income higher than your current reality. An experienced bankruptcy attorney can help you evaluate whether adjusting your filing timeline makes sense.

The means test is one piece of a larger picture. It tells you which chapter of bankruptcy you are eligible for, but it does not tell you which option is best for your situation. That depends on your goals, your assets, your debts, and what you want your financial future to look like. We walk through all of this during our free initial consultations at our office in Wexford.