Pennsylvania Bankruptcy Means Test: What High-Income Earners Need to Know

The Biggest Misconception About Bankruptcy Eligibility

If you are reading this page, you have probably been told, or assumed, that earning a decent living means bankruptcy is not an option for you. Perhaps you are a professional, a manager, a business owner, or someone who has worked hard to achieve financial stability, only to find yourself overwhelmed by debt from medical emergencies, divorce, business failure, or circumstances beyond your control.

The belief that “making good money” disqualifies you from debt relief is one of the most pervasive misconceptions about bankruptcy. This misunderstanding keeps many capable, hardworking people trapped in debt cycles they cannot escape, paying minimum payments indefinitely while their financial stress compounds.

The reality is more nuanced and often more hopeful than you might expect. Bankruptcy law does not simply ask, “How much do you earn?” Instead, it asks a more sophisticated question: “After paying for your necessary living expenses, do you have enough left over to meaningfully repay your unsecured creditors?”

This distinction between gross income and disposable income is fundamental to understanding your options. Let us explore how the bankruptcy means test actually works in Pennsylvania.

The Means Test: What It Actually Measures

The bankruptcy means test was introduced in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Its purpose is to evaluate whether a debtor has sufficient disposable income to repay a meaningful portion of their debts through a Chapter 13 repayment plan, or whether they genuinely need the immediate relief of Chapter 7 liquidation.

The test operates in two stages, and understanding each stage is essential for high-income earners who want to know their true options.

Stage One: The Median Income Comparison

The first stage compares your household’s average monthly income over the six calendar months before filing to the Pennsylvania median income for a household of your size. This data comes from the U.S. Census Bureau and is updated periodically by the Department of Justice.

If your income falls below the Pennsylvania median for your household size, you automatically pass the means test and are presumed eligible for Chapter 7 bankruptcy. You do not need to complete any further calculations.

Current Pennsylvania median income figures for cases filed on or after November 1, 2025 are:

Source: U.S. Department of Justice, U.S. Trustee Program. These figures are updated approximately every six months.

Stage Two: Calculating Disposable Income

If your income exceeds the Pennsylvania median, this does not end your analysis. You simply proceed to stage two, where the means test examines what you actually have available to pay creditors after accounting for necessary living expenses.

This is where many above-median earners discover they still qualify for Chapter 7 relief. The calculation involves subtracting specific allowable expenses from your income to determine your “disposable income” over a projected 60-month period.

If your projected disposable income over 60 months falls below certain thresholds, you pass the means test despite having above-median income. The current thresholds are approximately $9,075 (total over 60 months) for an automatic pass, with amounts between $9,075 and $15,150 requiring additional analysis.

Understanding Allowable Deductions

The means test allows you to deduct numerous expenses from your income calculation. Understanding these deductions is crucial for high-income filers, as they often make the difference between passing and failing the test.

IRS National Standards

Certain basic living expenses are calculated using IRS National Standards, which set fixed allowances based on household size for food, clothing, housekeeping supplies, personal care products, and miscellaneous expenses. You receive these allowances regardless of what you actually spend. For a family of four, the current national standard allowance exceeds $1,500 per month.

IRS Local Standards for Housing and Utilities

Housing expenses, including mortgage or rent payments, property taxes, insurance, utilities, and maintenance, are calculated using IRS Local Standards that vary by county and household size. Pennsylvania local standards often provide substantial deductions, particularly in areas with higher housing costs.

Secured Debt Payments

Your actual monthly payments for secured debts receive significant treatment in the means test. These include your mortgage payment (including property taxes and insurance escrowed into your payment), car loan payments, and any other debts secured by property you wish to keep. For many higher-income families, a substantial mortgage payment significantly reduces disposable income in the calculation.

Health Insurance and Medical Expenses

Your actual health insurance premiums are fully deductible. Additionally, out-of-pocket medical expenses beyond the standard allowance may be deducted if you can document them. The standard allowance for out-of-pocket health care is $84 per month for individuals under 65 and $149 per month for those 65 and older. If your actual expenses exceed these amounts, you may claim the additional expense with documentation.

Child Care and Education Costs

Necessary child care expenses that enable you to work are deductible. Court-ordered education expenses for dependent children may also be claimed, up to $208.33 per child per month for K-12 schooling. These deductions can be substantial for families with young children or those paying for private education required by custody agreements.

Tax Obligations

Income taxes, Social Security taxes, Medicare taxes, and state and local taxes withheld from your paycheck or paid during the lookback period are deductible. For higher earners, these deductions can be significant, particularly when self-employment taxes are involved.

Other Allowable Expenses

Additional deductions may include term life insurance, mandatory retirement contributions, union dues, required uniform costs, domestic support obligations (child support or alimony you pay), and certain education expenses related to your employment or a disabled child.

When Above-Median Income Still Qualifies for Chapter 7

Earning more than the Pennsylvania median income does not automatically disqualify you from Chapter 7 bankruptcy. After applying all allowable deductions, many above-median earners discover their disposable income falls within the passing threshold.

High Expenses Reduce Disposable Income

Consider a professional earning $120,000 annually with a family of four. At first glance, this income exceeds the Pennsylvania median of $132,379, but only slightly. Now consider that this family has a $2,800 monthly mortgage payment, $650 in car payments, $1,200 in health insurance premiums, $500 in child care costs, and significant payroll taxes. After applying all allowable deductions, their disposable income may well fall within passing thresholds.

Business Expense Considerations

If you are self-employed or have business income, your net business income (gross receipts minus ordinary and necessary business expenses) is what counts for the means test. Legitimate business expenses reduce your income before the means test calculation even begins.

Furthermore, if more than 50% of your debts are business-related rather than consumer debts, you may be exempt from the means test entirely. This exemption frequently applies to entrepreneurs, small business owners, and professionals who incurred debt through their practices or businesses.

Support Obligations

If you pay child support or alimony, these domestic support obligations are fully deductible from your means test calculation. For divorced individuals with substantial support obligations, this deduction can be significant enough to shift the analysis substantially in your favor.

Special Circumstances

The means test also provides for “special circumstances” that may justify additional expenses or income adjustments. Serious medical conditions, involuntary job loss, or other extraordinary situations may allow you to document expenses or income changes that affect your eligibility. These circumstances require specific documentation and explanation, but they provide important flexibility in the analysis.

Chapter 13: The High-Income Solution

If you do not qualify for Chapter 7 after the means test analysis, Chapter 13 bankruptcy offers powerful debt relief advantages specifically designed for individuals with regular income.

Why Chapter 13 Works for Above-Median Earners

Chapter 13 was designed precisely for people who have income but cannot manage their current debt obligations. Rather than viewing Chapter 13 as a lesser option, many higher-income filers find it offers advantages that Chapter 7 cannot provide.

Benefits of Structured Repayment

In Chapter 13, you propose a repayment plan lasting three to five years. During this time, you make a single monthly payment to a bankruptcy trustee, who distributes funds to your creditors according to the plan. This structured approach offers several benefits.

You maintain control of all your assets, including property that might not be fully exempt in Chapter 7. You can cure mortgage arrears over the life of the plan while keeping your home. You can restructure secured debts and potentially reduce the principal owed on certain loans. And at the end of your plan, remaining eligible unsecured debts are discharged, even if creditors received only a fraction of what you owed.

Asset Protection Capabilities

For high-income individuals with significant assets, including substantial home equity, investment accounts, or valuable property, Chapter 13 provides a path to protect these assets while eliminating unsecured debt. Pennsylvania allows you to choose between state and federal exemptions, but even with careful exemption planning, some assets may be at risk in Chapter 7. Chapter 13 allows you to keep everything while paying what you can afford based on your disposable income.

Partial Payment, Full Discharge

One of Chapter 13’s most significant benefits is that creditors receive only what you can afford to pay based on your disposable income, yet you receive a full discharge of remaining unsecured debts at plan completion. If your plan pays creditors 30 cents on the dollar, the other 70% is discharged. You receive a complete fresh start after completing your plan payments.

Income Variations and Calculations

Understanding how the means test treats income timing and variations can be strategically important for your filing decision.

The Six-Month Lookback Period

The means test calculates your “current monthly income” by averaging your gross income over the six full calendar months before your bankruptcy filing. This includes all sources of household income: wages, salary, overtime, commissions, bonuses, self-employment income, rental income, pension distributions, and regular contributions from others for household expenses.

Because the test uses a six-month average, timing your filing strategically can affect the calculation. If you received a significant bonus, severance payment, or commission several months ago that inflated your average, waiting until that income falls outside the lookback window may improve your means test results.

Job Loss or Income Reduction

If you recently lost your job or experienced a significant income reduction, your current actual income may be far lower than the six-month average suggests. While the means test uses the historical average, your actual current circumstances may support arguments for Chapter 7 eligibility or affect how your case is evaluated.

Commission and Variable Income

For individuals with commission-based or variable income, the six-month average smooths out fluctuations. However, strategic timing may still matter. If you know your income follows seasonal patterns, understanding when your six-month average will be lowest may inform your filing timeline.

Self-Employment Considerations

Self-employed individuals calculate their income as gross receipts minus ordinary and necessary business expenses. This net figure enters the means test calculation. Properly categorizing and documenting business expenses is essential, as legitimate deductions directly reduce your means test income.

Why Good People With Good Jobs Need Bankruptcy

If you are earning above-average income yet struggling with overwhelming debt, you are far from alone. The circumstances that lead financially responsible people to consider bankruptcy are often beyond their control.

Medical Emergencies

Even with health insurance, a serious illness or injury can generate tens or hundreds of thousands of dollars in medical debt. High deductibles, out-of-network providers, experimental treatments, and extended recoveries create financial burdens that no amount of careful planning could have prevented. Research from the Consumer Financial Protection Bureau consistently shows medical expenses as a leading contributor to financial distress among working families.

Divorce Impact

Divorce frequently transforms one viable household budget into two struggling ones. Support obligations, property settlements, legal fees, and the simple mathematics of maintaining two households on income that previously supported one create circumstances where bankruptcy may be the most practical path forward.

Business Failure With Personal Guarantees

Entrepreneurs and business owners often personally guarantee business debts as a condition of obtaining financing. When a business fails, these personal guarantees can leave the owner with overwhelming personal liability for business debts, commercial leases, equipment financing, and credit lines.

Economic Disruption

Job loss, industry downturns, corporate restructuring, and economic recessions can eliminate income streams that once comfortably supported debt obligations. The resulting struggle to maintain payments while seeking new employment can exhaust savings and create unsustainable debt burdens.

Lifestyle Inflation and Sudden Income Loss

When income rises over time, it is natural to adjust lifestyle accordingly. A larger home, better cars, private schools, and other expenses that seemed reasonable at higher income levels become unmanageable when income unexpectedly drops. This scenario is particularly common among professionals whose careers are disrupted by economic changes, industry shifts, or personal circumstances.

The Consultation Process for High-Income Filers

Evaluating bankruptcy options for above-median income individuals requires careful, detailed analysis. At the Law Offices of John M. Hyams, we approach every high-income case with the attention it deserves.

Detailed Financial Analysis

We begin by gathering comprehensive information about your income, including all sources, timing of payments, and anticipated changes. We examine your expenses in detail, identifying every allowable deduction that applies to your situation. We review your assets, debts, and overall financial picture to understand your complete circumstances.

Expense Documentation

Proper documentation of expenses can make a significant difference in your means test results. We help you identify and document qualifying expenses you may not have considered, ensuring that your means test calculation accurately reflects your financial reality.

Strategic Planning

Filing timing, exemption choices, and chapter selection all affect your outcome. We analyze various scenarios to identify the approach most likely to achieve your goals, whether that means pursuing Chapter 7 relief or developing a manageable Chapter 13 plan.

Chapter Selection Guidance

Sometimes Chapter 13 offers advantages even for filers who technically qualify for Chapter 7. We explain the benefits and considerations of each option so you can make an informed decision aligned with your priorities and circumstances.

Use our bankruptcy calculator for a preliminary assessment, then schedule a consultation to discuss your specific situation.