My Income is Over the Limit, Can I Still Qualify for Chapter 7?
If you are considering filing for Chapter 7 bankruptcy and are wondering if your income is too high to qualify, you may be surprised to learn that most people who need Chapter 7 protection are allowed to file. Chapter 7 Bankruptcy is most often relief sought for debtors. Under Chapter 7, you may eliminate most of your debt without having to repay your creditors, unless you so choose. However, the process for filing for bankruptcy protection can make anyone feel overwhelmed by its qualification complexities. Determining who can file for bankruptcy is one of the more complicated steps in the bankruptcy process. For Chapter 7, the main qualifying factor is the means test.
The Means Test – Part I
The means test was designed to separate those who are abusing the bankruptcy process by defrauding their creditors from those who truly cannot afford to repay their debts. The means test compares your average monthly income to other households of the same size in your area. If your average monthly income received from all sources during the six months prior to filing falls below the median, you usually qualify to file for Chapter 7 bankruptcy.
As of May 1, 2013, the Illinois state family median income figures are as follows:
- 1 person - $47,485
- Family of 2 - $59,861
- Family of 3 - $68,721
- Family of 4 - $80,776
It is important to note that your income will include unemployment, child support and maintenance, pension income, etc.
Means Test – Part II Deductions
If your income is higher than the applicable median, then you must complete the second part of the means test which calculates your monthly expenses, income, and debts in order to determine your disposable income. The formula includes deductions for allowed monthly expenses, which mirror the IRS allowable deductions. If you have enough disposable income to repay some of your debt, then you may fail the means test.
A bankruptcy lawyer can walk you through the means test process to determine if you qualify. Even if you fail the Chapter 7 means test, you may still qualify for bankruptcy under Chapter 13. DebtStoppers, Bankruptcy Law firm can help you determine which chapter will fit your needs.