Not Everyone Is Subject To The Chapter 7 Income Limits
Exception for Non-Consumer Debt. If more than 50% of your debt is considered non-consumer debt, youâre automatically exempt from the means test calculation. Non-consumer debt is also called business debt because itâs incurred with a business or profit motive. If youâre not sure if you have business debt, consider speaking to a bankruptcy attorney about your situation and the types of debt you have.
Exception for Qualifying Service Members and Veterans. Disabled veterans, reservists called to active duty and members of the national guard don’t have to count compensation connected to their service as part of the bankruptcy means test. This protection was recently expanded when the HAVEN Act was passed by Congress.
Anyone who qualifies for one of these exceptions to the bankruptcy income limits has to file Official Form 122A-1Supp instead of their bankruptcy means test form. This form, titled the Statement of Exemption from Presumption of Abuse Under Â§ 707, lets the bankruptcy court know that youâre not subject to the income limits.
Can You Make Too Much Money To File Bankruptcy
Submitted by the Bond & Botes Law Offices – Wednesday, April 1, 2015
To some, this may sound like a foolish question.; After all, why would someone need to file bankruptcy if they earn a lot of money?; Wouldnt someone who makes a good income be abusing the system if they filed for bankruptcy?; The answer is that everything is relative.; It really doesn’t matter how much money someone makes if they cant pay their bills as they become due.
If Youve Decided To File For Chapter 7 Bankruptcy You Should Be Prepared To Pass A Means Test
A bankruptcy means test determines whether your income exceeds a certain amount. This test is required to show that youre eligible for Chapter 7 bankruptcy based on your states income standards.
The Chapter 7 bankruptcy means test may seem confusing at first, but its easier to understand if you break it down. The process involves filling out one or possibly both forms below, and making calculations based on the information you input, to determine whether you pass the bankruptcy means test.
- Form 122A-1: Chapter 7 Statement of Your Current Monthly Income
- Form 122A-2: Chapter 7 Means Test Calculation
If you believe youre exempt from the means test, you may need to fill out an additional form known as a Statement of Exemption.
In this article, well go over what you need to know about Form 122A-1 and Form 122A-2. If you get lost or have more questions about whether bankruptcy is right for you, find a bankruptcy professional to help. We generally recommend starting with a in fact, its required by law to do so before filing for Chapter 7 bankruptcy.
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How To Get Out Of Debt Keep The House Car Retirement Savings And Finally Get A Fresh Start
Filing Bankruptcy Cases Under Different Chapters;
If youre filing under a different chapter the second time around, the following rules apply:;
- Chapter 7 after Chapter 13 According to Title 11 Section §727 of the U.S. Code, if your first filing was under Chapter 13, you will not be granted a discharge under a Chapter 7 until at least six years has passed from the date you filed your Chapter 13.
- Chapter 13 after Chapter 7 According to Title 11 Section §1328; of the U.S. Code, if your first case was a Chapter 7, you only have to wait four years before filing a Chapter 13.;
Filing for Bankruptcy for Reasons other than Discharge;
Keep in mind that the time limits discussed only pertain to discharges, not to filings. There is no limit to amount of times you can actually file. While seeking a discharge of debts is the most common reason to file for bankruptcy, its not the only reason.
Some file for the automatic stay which prevents creditors from collecting on debts. Depending on your circumstances, this could help you stop collection efforts and catch up on your payments.;
Running into Difficulties with Repeat Bankruptcy Filings;
There may be no legal limit on how many times you can file for bankruptcy in Texas but the courts will take a good look at why the debtor is filing for a subsequent bankruptcy. First, lets review why bankruptcies were written into American law.
Discuss Your Options with a Bankruptcy Attorney;
If You Have Too Many Assets They Will Be Sold
When declaring bankruptcy, your assets over a specified level will be sold, and your trustee will use that money to repay a part, or all of what you owe to your creditors. If youd rather not sell your assets, you will be expected to pay your trustee the amount that would have been given to your creditors had the items been sold. Most people cannot afford to pay the amounts necessary to keep their items.
Assets that trustees will look at include, but are not limited to things like home equity, vehicles, tools of the trade and RRSP contributions. Each province has rules around how much of your home equity you are allowed to keep if you file for bankruptcy. If you have more, the trustee will sell your home and give the remaining proceeds to your creditors.
Unless you need your vehicle to do your job , or if its only worth a modest amount, your vehicle may be sold to repay a portion or all of your debt. Your tools may be sold when declaring bankruptcy. Exceptions are sometimes made when your tools are required for your profession . The amount you paid into your RRSP in the last 12 months will be taken back by your trustee and applied towards your debts.
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Contact A Cleveland Bankruptcy Lawyer For Help
If you have filed for bankruptcy but now your circumstances have changed, it is not too late to get the help of an experienced bankruptcy attorney at Luftman, Heck & Associates. A change in your income may not lead to any major alterations of your bankruptcy plans. However, if your income has significantly grown, you may need to prepare for higher payments toward your debts.
To learn more, contact Luftman, Heck & Associates at and schedule a consultation.
Understanding The Bankruptcy Income Limit For Chapter 7 Bankruptcy Cases
Bankruptcy law seeks to strike a balance between protecting people that cannot pay back their debts with the rights of a creditor . As a result, a persons monthly income level is one of the biggest factors that determine whether someone may qualify for chapter 7 bankruptcy. While a current snapshot of a persons current monthly income and living expenses is part of the bankruptcy case analysis, another part of qualifying for bankruptcy under chapter 7 looks at a persons annual income. As a result, understanding what is the income limit for filing chapter 7 bankruptcy cases is really important when planning to prepare file your bankruptcy petition.
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Learn About Income Qualifications In Bankruptcy
By Cara O’Neill, Attorney
Making a significant income won’t stop you from filing for bankruptcybut it might determine under which bankruptcy chapterChapter 7 or Chapter 13you can wipe out qualifying debt. Your ability to file a particular chapter will depend on your income, and, in some cases, your deductible expenses.
What Happens If You Dont Qualify For Chapter 7 Or Chapter 13 Bankruptcy
Chapter 11 is a section of the bankruptcy code that is available to businesses and individuals.
Under Chapter 11, individual debtors are able to reorganize their debts to protect their assets and to restructure their finances.;However, Chapter 11 cases are rarely filed by individuals because most people are able to qualify for either Chapter 7 or Chapter 13. When people file for Chapter 11, they generally do so because their unsecured debts exceed the limits established for Chapter 13 or they are reorganizing real estate investments.
A Chapter 11 bankruptcy petition may be filed if you owe too much unsecured debt and if you do not pass the means test for Chapter 7. You will have to propose a repayment plan through which you will make monthly payments to the bankruptcy trustee. The trustee will then distribute your payments to the creditors. If you successfully complete your repayment plan, the court will issue a discharge at the end of your repayment period that absolves you of having to make any further payments to the creditors of the discharged debt balances.
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Who Needs To Fill It Out
If your completed Form 122A-1 shows your income is higher than the median, you must file Form 122A-2. This is the actual means test the calculations you enter on this form determine how much money you have available to pay off other debts.
If that amount is high enough, you may be presumed to have too much income to qualify for Chapter 7 bankruptcy. This is called a presumption of abuse. If Form 122A-2 indicates a presumption of abuse in your case, you may still qualify for Chapter 7 bankruptcy if you can show special circumstances that reduce your income or increase your expenses.
What Happens If You Dont Pass The Chapter 7 Means Test
If you cant find a way around the means test, and you cant reduce your average monthly income to more closely align with the median income limit for your household size, filing for Chapter 13 bankruptcy may be your remaining option, which requires you to make monthly payments over a three- to five-year period according to a repayment plan you create. Generally, if you can file a chapter 7 case, you should do so. If not, however, Chapter 13 bankruptcy may be a great way to handle certain problems, like curing a default on a mortgage, dealing with all of your unsecured debts in one place, or if you have certain nonexempt property that you would lose in chapter 7 bankruptcy.
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An Increase In Income During Chapter 13
Chapter 13 bankruptcy is appropriate when you have a steady income and can afford to pay off your necessary expenses, yet you do not make enough to keep up with your debt. You can use Chapter 13 to retain some of your assets, but discharge all or a lot of your debts. The court will give you three to five years to pay your debts on a set schedule rather than the original rate determined.
The amount you are required to pay towards your debts is based on your income minus your necessary expenses, such as rent or a mortgage payment, utilities, transportation, food, and medical care. Essentially, you will pay all of your disposable income toward your liabilities. When you get a raise at work or a new, better paying job, this may need to be disclosed to the court. It can depend on the language of your bankruptcy plans. You should speak with a Cleveland bankruptcy attorney to determine whether you must or should tell the bankruptcy trustee about your higher income.
A greater income may require that you make higher payments toward your debt. This is usually true if it is a significant increase in income, such as if you obtained a new job after completing an educational program or if you started working a second job.
Preparing For Chapter 7 Bankruptcy
Theres some protocol to follow in the months before filing for bankruptcy. Failing to follow these instructions could undermine your efforts.
Dont Pay Creditors It seems counterintuitive and you should definitely make routine payments. But any large or unusual payments could be viewed as preferential transfers. That means one creditor has benefited unfairly over others.
No New Debt A new creditor could claim you took out a loan or ran up the balance on a credit card without intending to pay it back. Legally, thats fraud and it will not be forgiven.
No Unusual Transactions Dont stray from the routine. Dont transfer titles of cars or homes. Dont buy luxury goods. Dont transfer your business or remove your name from it. They can all be classified as fraud.
Be Truthful You are required, while filing for bankruptcy, to provide full and complete information. You must disclose any debt, assets, accounts or other financial information. Failure to comply could lead to fraud and potential criminal charges.
Dont Touch Retirement Funds You are generally allowed to keep retirement plans and accounts, so keep them safe while considering bankruptcy and dont use those funds to pay down debt.
Never think you can get away with something sneaky or dishonest. Your bankruptcy lawyer is always a good resource for what you should and shouldnt do.
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Chapter 7 Income Limits
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, also known as BAPCPA, which mandated the Chapter 7 income limits. Chapter 7 bankruptcy typically does not involve any type of repayment plan, so Congress was worried about people abusing the bankruptcy process. In order to prevent abuse of the bankruptcy system, Congress added a credit counseling requirement for people filing any kind of bankruptcy and set income limits for a Chapter 7 bankruptcy. But what is the income limit for Chapter 7 and do you qualify? In order to figure out whether you can afford to pay part of your consumer debts as part of a Chapter 13 bankruptcy rather than filing a Chapter 7 bankruptcy, you are required to take a bankruptcy means test.
That being said, not everyone is subject to the;Chapter 7 bankruptcy income limits:
People who qualify for one of these exemptions to the Chapter 7 bankruptcy income limits need to file a form called Official Form 122A-1Supp, or the Statement of Exemption from Presumption of Abuse Under 707, instead of the bankruptcy means test form. This form lets the bankruptcy court know that you are not subject to the income limits.
Here Is What You Should Know When File For Bankruptcy Twice
When you File for Bankruptcy for the first time and receive a discharge, then you have to wait for a specified period before you can receive a discharge again.
If your case was dismissed without entry of a discharge, you can file another bankruptcy but there may be limitations placed on the filing, especially if your case was dismissed within the year preceding your second filing.
For example, if you have had a case dismissed within the last year, the automatic stay only remains in effect in your second filing for one month, unless you get this extended by Order of the Court.
If you have had two cases dismissed within the year preceding a third filing, the automatic stay does not go into effect at all at the beginning of the case, and you have to seek approval from the Court to impose the automatic stay, or in other words put it into effect.
This is important because the automatic stay prevents creditors from taking action against you such as a garnishment, foreclosure or repossession. Normally this stay goes into effect automatically when a bankruptcy is filed, hence the name.
However, if the automatic stay does not go into effect or expires because of a prior bankruptcy dismissal, your bankruptcy will not prevent such creditor action.
With respect to discharge eligibility, you can file for Bankruptcy twice or even three times and get a discharge every time, provided you remain patient and wait for a certain period before filing again.
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Why Household Size And Median Income Limits Are Important In Chapter 7 Cases
As mentioned above, the bankruptcy income limits are important because they serve as the objective scale when balancing the rights of creditors to enforce a debt versus the desire of a person to receive a discharge of their debts. Although maybe not the perfect scale to measure against, the monthly income and annual income of a person versus the median income of a household of a similar size may be indicative of whether there should be disposable income money left over each month for debts to be paid.
While the bankruptcy income limit does not prevent you from filing a Chapter 7 bankruptcy case, if it turns out that you are an above median debtor , then your bankruptcy filing will raise a presumption of abuse, and likely be dismissed or converted to a chapter 13 case upon motion of the bankruptcy trustee.
What If I Cant Afford It Even If I Do Make Money
Could you afford to file if all your collection actions were stayed? Could you afford payments on a $0 down bankruptcy if all those bills and debts eating your check stopped as soon as you filed? If you could, then coming in for a free consultation is going to be the first step to getting into a debt free life. If you are making enough to handle your life without debts, then you should file. Waiting too long is only going to keep frittering your money away on minimum payments while neglecting things you need to make a priority.;
- Could you afford your whole prescription medications if you werent in so much debt?
- Could you get needed dental care if you werent spending so much money servicing your debt?
- How long have you gone without new glasses or an eye exam because the debts come first?
- Have you skipped vet care for your pet or had to choose a less effective option because of cost?
- Is your car having problems that you cant afford?
- Are your spouse or kids going without care because theres no money to spare?
- Are you going further into debt with personal loans, payday loans or financing companies like Care Credit?
- Have you taken out a title loan against your car to pay for goods and services you or a family member needs?
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