In order to qualify for a discharge in Chapter 7 bankruptcy, a person will need to pass what is known as the “means test.” This test was part of bankruptcy reforms enacted in 2005 ostensibly to prevent bankruptcy abuse. The means test looks at your income, the type of debts you owe, and your assets to determine if you qualify for Chapter 7. If you have questions about the means test or bankruptcy in general, a Philadelphia bankruptcy law firm can answer your questions.
For those whose income is below the monthly median for Pennsylvania, the means test will not apply. For a single filer, the median income is $48,982. It then goes up based on the specific number of people in your family. If you make less than this amount and have no filed Chapter 7 within 8 years, you may be eligible for a discharge of all unsecured, non-priority debt.
It is important to note that this income is based on your previous six months of income (excluding the month of filing). This can help or hurt you depending on your circumstances. For instance, if you had a high paying job that you lost two months ago, it may be difficult to file because your current monthly income would still include the months you were employed. A bankruptcy attorney can help you calculate your income to determine if you are above or below the median income.
If your income is above the median, you may still qualify for Chapter 7 depending on your expenses. The court will examine your disposable income, which is the amount left over after allowable expenses. This includes taxes, mortgage, car payment, and credit card debt. If, after deducing these expenses, your disposable income is under a certain amount (currently around $195 per month), you can qualify for Chapter 7.
One note on this is that if a particular expense is deemed unreasonably high, you may still fail to qualify. For example, if you have a four person family and a mortgage of $6500 per month, the court may find that this is an unreasonable expense and not allow the debtor to file Chapter 7. Calculating disposable income can be difficult, so a person should speak to a bankruptcy lawyer to learn more about their options if they will need to run these calculations.
Trish Mayer and Scott Waterman are here to answer any questions you may have about bankruptcy. We understand how stressful it can be to suffer with overwhelming debt. We can help get your debt under control once and for all. For a free consultation to discuss your debt problems, contact Waterman & Mayer, LLP, today.