Chapter 7 — Qualifying For Bankruptcy
One of the myths around qualifying for bankruptcy is that if you make more than a certain amount of income you cannot file. The truth is whether you qualify for bankruptcy is typically determined by examining both your income and your debts and expenses, as a whole.
If you make less than the median income in your state, you will automatically qualify for bankruptcy. The median income is determined by state, and one relevant factor is the size of your household—a word which has a unique definition in bankruptcy. Your bankruptcy attorney can tell you what the median income is in your state, specifically for your household size.
Even if your income exceeds the median income for your household size, you may still pass the Means Test. The Means Test recognizes that just because you have income doesn’t mean you can afford to pay your bills. It essentially compares your income to your expenses and allows deductions for some standard expenses like the operation of a vehicle, or health insurance. Additionally, it allows you to deduct some expenses specific to your situation. Those may be expenses related to caring for an elderly relative, or for your own special needs or circumstances. In this sense, qualifying for bankruptcy becomes an analysis of your own unique situation.
Even if you make more than the median income and fail the Means Test, you may still choose to file a Chapter 13 bankruptcy. The Chapter 13 bankruptcy in this instance recognizes you may have some ability to pay back your bills but not the ability to pay what creditors are asking. It operates to force creditors to accept a reasonable schedule for repayment of your debt and in most cases you pay less than 10% of your total unsecured (credit cards, medical, etc) debt, in exchange for a discharge of the remainder of that debt.
If you have questions about qualifying for Chapter 7, the Means Test, or any other bankruptcy related questions, please call 704.749.7747 to get your questions answered. We’re here to help.