I Make Good Money. Can I Still File for Bankruptcy?

By John M. Hyams, Bankruptcy Attorney  |  Over 20 Years Exclusively Practicing Bankruptcy Law in Central Pennsylvania

You have spent years building a career. You have worked for promotions, launched a business, or built a practice that earns a solid income. And yet, here you are, searching for answers about bankruptcy.

Maybe it was a business that did not survive. Maybe it was a divorce that divided your finances and doubled your expenses. Maybe medical bills piled up in ways no insurance plan could cover. Or maybe the weight of student loans, personal guarantees, and credit card debt simply became impossible to manage, no matter how many hours you worked.

Whatever brought you here, there is one belief that may be holding you back: the idea that because you earn a decent living, bankruptcy is simply not available to you.

That belief is wrong. And staying trapped by it could cost you years of unnecessary financial pain.

The Income Myth: Where It Comes From and Why It Is Wrong

One of the most persistent misconceptions about bankruptcy is the belief that you must be broke to qualify. This myth gets reinforced by casual conversation, outdated advice, and even well-meaning financial professionals who do not specialize in bankruptcy law.

The misconception intensified after Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005, which introduced something called the “means test.” News coverage at the time focused heavily on the idea that the new law would make it harder for people with income to file bankruptcy. While BAPCPA did add an income screening step, the resulting headlines vastly oversimplified how the test actually works.

Here is the reality: the means test does not simply compare your salary to an arbitrary threshold and issue a pass/fail. It is a two-stage analysis that considers your household size, your actual living expenses, and what you truly have left over after paying for necessities. Earning above the state median income is not the end of the analysis. It is just the beginning.

Understanding the Means Test: What It Actually Measures

The Pennsylvania bankruptcy means test is the eligibility screening tool for Chapter 7 bankruptcy. It exists to determine whether you have enough disposable income to repay a meaningful portion of your debts. If you do, you may be directed toward Chapter 13 instead. If you do not, Chapter 7 remains available.

The test works in two stages:

Stage One: The Median Income Comparison

First, the test calculates your average monthly income over the six calendar months before you file. This figure is then compared to the median income for a household of your size in Pennsylvania. If your income falls below the median, you automatically pass and can proceed with Chapter 7.

For context, the current Pennsylvania median income thresholds (for cases filed on or after November 1, 2025) are approximately $70,378 for a single-person household, $85,290 for a two-person household, $107,327 for a three-person household, and $132,379 for a four-person household, with an additional $11,100 added for each person beyond four. These figures are updated approximately every six months by the U.S. Department of Justice.

Stage Two: Calculating Your True Disposable Income

If your income exceeds the Pennsylvania median, you move to stage two. This is where the analysis gets more detailed and, for many high earners, more favorable than expected.

Stage two allows you to subtract specific categories of expenses from your income to determine your actual disposable income. What remains after these deductions is what the court considers available to pay creditors. If that amount is low enough, you still qualify for Chapter 7.

The critical point: the means test was designed to identify people who are abusing the system, not to exclude everyone with a decent paycheck. Many people with above-median incomes have above-median expenses as well, and the law accounts for that.

Deductions That Can Change the Outcome

The second stage of the means test allows for a range of expense deductions that can significantly reduce your calculated disposable income. These are the categories that most frequently benefit higher earners:

• Mortgage and secured debt payments. If you carry a substantial mortgage, car loan, or other secured debt, those monthly payments are fully deductible. A larger mortgage often means a significantly lower disposable income on paper.
• Health insurance and out-of-pocket medical costs. Premiums, co-pays, prescription costs, and ongoing treatment expenses all count.
• Childcare and dependent care expenses. Daycare, after-school programs, and care for aging dependents can represent significant monthly costs.
• Required payroll deductions. Federal and state taxes, Social Security, Medicare, mandatory retirement contributions, and union dues.
• Court-ordered obligations. Child support and alimony payments are fully deductible.
• IRS-standard living expenses. Food, clothing, housing, utilities, and transportation are deducted using national and local standards set by the IRS.

When you add up a large mortgage payment, health insurance premiums, childcare costs, taxes, and standard living expenses, even a six-figure income can result in very little disposable income. That is exactly the situation the means test is designed to evaluate fairly.

Chapter 7: When High Earners Still Qualify

Chapter 7 bankruptcy offers a relatively quick path to eliminating most unsecured debts, including credit cards, medical bills, personal loans, and certain other obligations. Most Chapter 7 cases are completed within four to six months.

High earners may qualify for Chapter 7 when their allowable expense deductions bring their disposable income below the threshold. This happens more often than most people expect, particularly in situations involving:

• High housing costs relative to income, especially in areas with expensive real estate
• Significant ongoing medical expenses for a family member
• Multiple dependents requiring childcare or educational support
• Recent income changes, such as job loss or reduced hours, that bring the six-month average down

There is also an important exception for business debt: if more than 50% of your total debt is business-related rather than personal consumer debt, you are exempt from the means test entirely. This is particularly relevant for business owners whose personal guarantees on commercial loans or lines of credit have created personal liability.

Chapter 13: A Powerful Tool Designed for Above-Median Earners

If Chapter 7 is not available based on your means test results, Chapter 13 bankruptcy is not a consolation prize. For many higher-income individuals, it is actually the better strategic choice.

Chapter 13 allows you to restructure your debts into a manageable three-to-five-year repayment plan, overseen by the bankruptcy court. During this period, you make a single monthly payment to a court-appointed trustee, who distributes funds to your creditors according to the court-approved plan.

Here is why Chapter 13 is especially valuable for higher earners:

• Asset protection. Chapter 13 allows you to keep property that might not be fully protected by exemptions in a Chapter 7 case, including homes with significant equity, investment properties, or valuable business assets.
• Mortgage arrears recovery. If you have fallen behind on your mortgage, Chapter 13 lets you catch up on missed payments through the repayment plan while keeping your home.
• The automatic stay. The moment your case is filed, the automatic stay under 11 U.S.C. § 362 immediately stops creditor collection actions, wage garnishments, lawsuits, and foreclosure proceedings.
• Discharge at completion. At the end of your repayment plan, remaining qualifying unsecured debts are discharged. You complete the plan, and the remaining eligible debt goes away.

Why High Earners Find Themselves Needing Bankruptcy

Financial crisis does not respect income levels. In fact, higher earners often carry proportionally higher obligations, including larger mortgages, business debts, tax liabilities, and lifestyle commitments that amplify the impact of any financial disruption.

The most common triggers we see among higher-income clients include:

• Divorce and financial restructuring. The division of assets and the cost of maintaining two households can transform a comfortable income into an impossible balancing act.
• Medical emergencies. High-deductible health plans, extended treatments, and rehabilitation costs can generate six-figure medical debt even for insured individuals.
• Business failure and personal guarantees. Business owners who signed personal guarantees on commercial leases, loans, or lines of credit can face devastating personal liability when the business fails.
• Economic disruption. Industry downturns, layoffs, and contract cancellations can eliminate income overnight while obligations remain.

In every one of these situations, the person did not fail. The circumstances changed. And the law provides a path forward.

Disclaimer: This information is for educational purposes and does not constitute legal advice. Results may vary based on individual circumstances. The Law Offices of John M. Hyams provides consultations to evaluate your specific situation under current bankruptcy law.