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Bankruptcy and Income
Under the new bankruptcy law, people who file for Chapter 7 bankruptcy have to pass what is known as the "Chapter 7 means test". The Chapter 7 means test is a formula applied to determine whether or not the consumer should have enough money available to make some minimal payment to creditors in a Chapter 13 bankruptcy plan. The goal is to reserve Chapter 7 bankruptcy for those who really have no means to pay and to push those who have available income into Chapter 13 bankruptcy plans, so that their creditors will receive at least partial payment. The first step in the Chapter 7 bankruptcy means test is simple: it compares your income to the median income in your state for a family the same size as yours. The median income for your family size may differ dramatically depending upon where you live, and a bankruptcy lawyer can tell you whether you are above or below the applicable median income. Check out our state median incomes table below for more information. (Continued Below) Please take a moment to consider your debt relief options Bankruptcy Chapter 7: Discharges all debts completely, no monthly payments. Read More | Online Qualification Test | Comparison | Calculate Savings Debt Negotiation: Repay about 50% of debts*, dramatic monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Bankruptcy Chapter 13: Repay about 85% of debts*, no monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Credit Counseling: Repay 100% of debts, some monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings If your income is higher than the median income, it doesn't necessarily mean that you can't file for Chapter 7 bankruptcy; it just triggers the second step in the test. The second step is a bit more complicated, and actually breaks down into separate pieces itself. Certain allowable expenses (determined by IRS guidelines) are subtracted from your income to find your "disposable income." If your projected disposable income over the next five years totals less than $6,000 ($100/month), you likely "pass" and can file under Chapter 7. If your disposable income is greater than $10,000 over the next five years, a presumption arises that you don't really need to file for Chapter 7 bankruptcy and you may only be allowed to do so if you can demonstrate special circumstances. In the gray area between $6,000 and $10,000, yet another calculation is often required. This one compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over that five years is greater than 25 percent of your unsecured, non-priority debts, you'll probably find yourself in the same circumstances as if you'd had more than $10,000 in disposable income. If your disposable income over a five year period is less than 25 percent of your unsecured, non-priority debts, you will likely "pass" the means test. If Your Income is Within These Limits, You'll Likely Qualify for Chapter 7:
Bankruptcy and Income: Find out if you pass the bankruptcy median test... Related Articles Bankruptcy Median Income Test : Take the median test to see if you qualify for BK Median Income Table : Look at the bankruptcy median income table for all 50 states Median Income by State : Another state list of bk median incomes Bankruptcy and Income : Read about how your income affects a BK proceeding |
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