Will Income Prevent You From Filing A Chapter 7 Bankruptcy?

23 April 2018
 Categories: Law, Blog


No big decision should happen without a lot of thought, and the bankruptcy decision is no different. There is a lot to think about, particularly the financial and credit ramifications. One thing you may not be thinking about is your income and how it's related to a chapter 7 filing. Read on for what you need to know about income limits for bankruptcy.

Why are there income limits? Bankruptcy is not meant to be an easy way out of paying your debt responsibilities, and the bankruptcy codes have undergone some changes to reflect that. If you have the funds to pay your creditors, you should not be declaring bankruptcy. Before the codes changed, almost anyone who wanted to file did so, even those with plenty of money. Too many rich filers that repeatedly misused the system resulted in the means test for everyone.

The means test: The means here stands for your income, as in the means to pay your debts. The test is really a calculation that looks at your income and allows some deductions to remove some of that income, hopefully allowing a filing.

How much is too much? That depends on your state. Each state has its own median income, which is the average of all income across the state according to the IRS. The median amounts can change each year depending on the fluctuations of what people earned in previous years.

Form 22-A: A chapter 7 filing requires several forms and this is the one where you list your budget. Don't be misled, however, since putting the wrong information on this particular budget could prevent you from filing for bankruptcy. Here you will be asked about your last six months of income and a list of your debts. This is no time to be shy about your debt burden; ensure that you provide a complete listing of everyone to whom you owe money.

Deductions: If you have a lot of certain types of debts, particularly debts that won't go away with the bankruptcy, you may still qualify to file for a chapter 7 bankruptcy even if your income tests too high. For example, generally tax debts, student loan debts, and back child support cannot be forgiven with a bankruptcy filing.

Try it on for size: While online means tests calculators can give you a good idea of your filing status, you would be foolish to rely on that alone to make your decision. Speak to a bankruptcy attorney about chapter 7 bankruptcy filing services and let a professional evaluate your income and debts in regard to the means test. It should also be noted that another consumer bankruptcy, chapter 13, has no income limits or means tests to qualify for filing.