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Young Marr remains dedicated to our clients during this COVID-19 quarantine. We understand that legal needs of our clients must go on during this time. In order to minimize disruption as much as possible, we are offering free consultations via phone and/or video and can have our clients submit documents virtually.

Means Testing in Chapter 7 or Chapter 13 Bankruptcy

What is Means Testing?

The means test was added to the bankruptcy code in October 2005 to create objective standards for determining which individuals qualify for filing for relief in Chapter 7 vs. Chapter 13 bankruptcy. It applies only to individuals and only those individuals who have primarily consumer debt.

The first step in Chapter 7 bankruptcy means test is simple. It compares your income to the median income in your state for families the same size as yours. If your income is lower than the median the debtor “passes the means test” and most likely will file a Chapter 7 bankruptcy. If the debtor’s income exceeds the median income, a further analysis is performed, looking at the debtor’s calculated ability to fund a Chapter 13 plan. The debtor’s disposable income is calculated by a mix of actual and standardized expenses to the debtor’s previous average income. If it is determined that the debtor can pay $10,950.00 in five years or as little as $182.50 a month to creditors, a presumption arises that a Chapter 7 filing is abusive and may not be appropriate, however, the presumption of abuse may be rebutted by the debtor. Your income, for means testing purposes, is your income for the six months prior to the filing of your bankruptcy. For means test purposes, it doesn’t necessarily matter what your income is now. What matters is your income for the proceeding six months. Income includes income from all sources with the exception of Social Security related programs. For example, income includes unemployment and employment income as well as pensions and passive income.

There are many unanswered questions about the application of the means test in various family configurations and income scenarios. Only court interpretation of these murky areas of the amendments will begin to map the actual effect of the means test and other aspects of the BACPA Amendments of 2005. And remember, Congress’s goal is to reserve Chapter 7 bankruptcy for those who really do not have the means to pay. However, it is also important to remember that most people who would have qualified for a Chapter 7 bankruptcy prior to the October 2005 Amendment, still do qualify for Chapter 7 bankruptcy relief.

Median Income for Pennsylvania and New Jersey Residents

Family Size PA Median Income NJ Median Income
1 $44,396 $59,812
2 $53,572 $71,744
3 $67,516 $85,764
4 $77,590 $102,894
5 $85,090 $110,394
6 $117,894 $117,894
For each additional dependent + $7,500 + $7,500

 

These income amounts are accurate as of 12/1/10 and are periodically changed based upon IRS and census data.

Have You:

Been paying credit card balances that seem to never go down?

Lost your job and are now having trouble keeping up?

Attempted to work out a payment arrangement to no avail?

Been notified of a mortgage foreclosure action?

Been denied for a mortgage or other line of credit?

If the answer to any of these questions is “yes” then bankruptcy may be an option that you should consider.

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12 Convenient Office Locations

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Quakertown

328 W Broad St
Quakertown, PA 18951
Tel: (215) 515-6876
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Philadelphia

7909 Bustleton Ave, First Floor
Philadelphia, PA 19152
Tel: (215) 607-2715
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Bensalem

3554 Hulmeville Rd, #102
Bensalem, PA 19020
Tel: (215) 515-6389
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Marlton

10000 Lincoln Drive E, Suite 201
Marlton, NJ 08053
Tel: (856) 213-2805
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Bala Cynwyd

2 Bala Plaza, Suite 300
Bala Cynwyd, PA 19004
Tel: (610) 557-3209
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Jenkintown

101 Greenwood Ave
Jenkintown, PA 19046
Tel: (215) 544-3347
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Mt. Holly

27 Cedar St
Mt. Holly, NJ 08060
Tel: (609) 796-4344
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Piscataway

200 Centennial Ave, Suite 200
Piscataway, NJ 08854
Tel: (908) 367-7256
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Allentown

137 N 5th St, Suite A
Allentown, PA 18102
Tel: (215) 240-4082
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Easton

101 Larry Holmes Dr, #212
Easton, PA 18042
Tel: (215) 515-7077
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Hamilton Twp.

3525 Quakerbridge Rd, #903
Hamilton Township, NJ 08619
Tel: (609) 236-8649
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