Can You Make Too Much to File for Bankruptcy?
One common concern among people considering personal bankruptcy is whether their income is too high to qualify for bankruptcy protection. In most cases, the answer is no.
While it is possible to have an income too high to qualify for Chapter 7 bankruptcy, there is no income limit to file under Chapter 13.
To consult with a bankruptcy lawyer about your income levels and eligibility for bankruptcy protection, please fill out the case review form below. You can arrange a free, no-obligation bankruptcy consultation with an attorney near you today.
Income and Qualifying for Bankruptcy
Since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), anyone interested in filing under Chapter 7 of the U.S. Bankruptcy Code has had to pass a means test, or a test of disposable income levels. Here's how it works:
- Median income comparison: The first step of the means test requires potential filers to compare their income to the median income of a household their size in their state. If they make less than the median, they pass the means test. If they make more than the median, they must go on to the second step. Compare median incomes in your state here.
- Disposable income calculation: The second step involves deducting certain "allowable expenses," as outlined by the bankruptcy court. These generally include the cost of lodging, food, clothing and other necessities. If a filer has less than $6,000 in disposable income over five years (about $100 per month), she usually "passes" the means test and can file for Chapter 7 bankruptcy. If a filer has more than $10,000 in disposable income over five years, it's assumed that she can afford to make payments in a Chapter 13 repayment plan.
- Unsecured debt calculation: If you find that your disposable income falls somewhere between $6,000 and $10,000, you'll have to do another calculation, which involves comparing a portion of your unsecured debts to your disposable income. The goal is to determine whether you have a reasonable chance of repaying your creditors over the next three to five years.
As you can see, completing the means test requires an understanding of the law, knowledge of state median incomes and handiness with a calculator. Because of how complex the Chapter 7 means test can be, it's generally a good idea to work with the help of a bankruptcy lawyer to make sure you complete the process correctly.
What if I Make too Much for Chapter 7 Bankruptcy?
If your income is too high to pass the means test, that doesn't mean you can't file for bankruptcy, only that you likely won't be able to file under Chapter 7. Filers who have income that exceeds means test's requirements may have the option of filing under Chapter 13. In Chapter 13 bankruptcy:
- Filers follow a repayment plan: This schedule outlines which creditors will get how much money for the duration of the three-to-five-year repayment period. Secured debts are usually given priority in the plan, and some credit card debts or other unsecured debts may be significantly reduced or even eliminated in the Chapter 13 plan.
- Filers make monthly payments: Each month, in addition to keeping up with bills that come due, Chapter 13 filers make a payment to their bankruptcy trustee, who distributes the money among the creditors as determined by the repayment plan.
- Filers may get some debts discharged: Rather than a complete discharge (as in Chapter 7 bankruptcy), Chapter 13 filers who successfully complete their plans generally receive a discharge any eligible debts that remain after the repayment period has expired.
Find Out if You're Eligible to File for Chapter 7 Bankruptcy
If you truly need bankruptcy protection, take the next step today - consult with a local attorney.
By working with a bankruptcy attorney, you can determine whether you might qualify for Chapter 7, or whether Chapter 13 may better suit your needs.
Get started today - simply fill out the case review form below to arrange a free, no-obligation consultation with an attorney near you.