Chapter 7 Bankruptcy Code: Income Requirements

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The chapter 7 bankruptcy code has established new requirements, as of 2005, to prevent debtors with high incomes from filing for this form of bankruptcy in order to preserve chapter 7 bankruptcy for those with low incomes and high debts. The method of screening debtors and determining who qualifies for chapter 7 bankruptcy is the “means” test. This means test determines the disposable income of a potential filer and compares it to a minimum allowable amount. Those who pass the “means” test qualify for chapter 7 bankruptcy.

Income Requirements

There are two tests that are literally a part of the “means” test in the chapter 7 bankruptcy code. Each potential filer must determine if they pass the median and means tests. There are many aids available, through the U.S. Trustee’s program, the local bar association, a bankruptcy attorney, or through online “means” test calculators. The two primary income requirements can be found in these portions of the “means” test:

  • Median income – this test establishes an income level which is determined by the median income for a household of the same size in the same region. Those with an income lower than that amount automatically qualify to file for chapter 7 bankruptcy. Those with an income higher than that median income must move on to the more complicated “means” test.
  • “Means” calculation – this test calculates a person’s income and expenses over the past six months (it bases some of those amounts on standard, allowable figures). The difference is their monthly disposable income. If it falls below the standard for the potential filer’s location and family size, they qualify to file for chapter 7 bankruptcy. If the amount is above the allowable amount, they do not qualify for chapter 7 bankruptcy.

Results

Those who qualify for chapter 7 bankruptcy may apply most of the information used in the “means” test on their chapter 7 petition form. They will then be able to work with a bankruptcy trustee to possibly liquidate some non-exempt property (if any), and discharge many, if not all, of their unsecured debt.

Those who do not qualify for chapter 7 bankruptcy may be able to qualify for chapter 13 bankruptcy. They may also use much of the information compiled for the chapter 7 test to apply for the chapter 13 test. If they do qualify, chapter 13 bankruptcy allows them to restructure their debt and pay the bulk of it off in a three- or five-year repayment plan. At the end of that time, they may be able to cram down, or even discharge, some of their remaining debts.

Getting Legal Help with Income Requirements for Chapter 7 Bankruptcy

There are a number of elements every debtor must consider when filing for bankruptcy. Determining if the process is right for them, as well as if they qualify for it, is a complex process that often is best pursued with the help of a bankruptcy attorney.

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