Minimum Bankruptcy Qualifications

You may know that there are generally two types of bankruptcy available to individuals, but did you know that there are bankruptcy qualifications that will determine which type of bankruptcy relief you qualify for? The two types of bankruptcy protection are Chapter 7 and Chapter 13. Under Chapter 13, your debts are discharged after you successfully complete a court supervised repayment plan which usually lasts for three to five years. With a Chapter 7 bankruptcy, your debts are discharged without a repayment plan.

On the surface, to a debtor who is already overwhelmed with unpaid bills Chapter 7 bankruptcy may sound like the more desirable course. For many people it is, but since it can involve forgiveness of enormous amounts of debt even if you don't have assets which can be liquidated to help pay those debts you have to meet certain eligibility requirements in order to file Chapter 7 bankruptcy.

Median Income Test

The first qualifier for Chapter 7 is a comparison of your current monthly income against the median income for your state. If your income falls below the median income for your family size in your state, then you can file Chapter 7 bankruptcy without having to qualify on other grounds. The median income is published each year by the US Census Bureau. Here are three examples of how annual median income can vary by state for a family of four:

• In Massachusetts the median income is $100,452
• In North Carolina the median income is $66,487
• In New Mexico the median income is $52,842

Means Test

If you live in New Mexico and you have a family of four and an annual income higher than the $52,842 median income you are not automatically disqualified from filing bankruptcy. Instead, your situation is examined more carefully in a means test. The purpose of the means test is to make sure a potential bankruptcy filer is not abusing the system and that only those debtors who have no way of repaying their debts are allowed to file Chapter 7.

• Certain allowed expenses (which will vary depending on where you live) are deducted from your monthly disposable income.
• The resulting figure is then multiplied by 60 to come up with a five year projection for how much money you have left after expenses are deducted.
• If the 5 year figure is higher than $10,000 you are likely to be denied Chapter 7 and will have to file Chapter 13.

Get Legal Help

The means test can become even more complex than already described. It is imperative that you contact a reputable, local bankruptcy attorney to discuss your financial situation and learn what options are available to you so that you can get control of your debt and get a fresh start.