Jul I Make More Than The Median Income Can I File For Chapter 7
Several people have called me recently, saying that they wanted to file for Chapter 7, but couldnt because their income was too high. In most cases, however, a high incomeeven one significantly over your states median incomedoesnt automatically disqualify you from Chapter 7. Ive personally filed Chapter 7 cases for people who have incomes over $350,000, without difficulty.
How? The answer lies in how the Bankruptcy Code looks at the Means Test.
The Bankruptcy Code requires individuals to complete a Means Test when they file Chapter 7, 11, 12 or 13. The stated purpose of the Means Test is to make sure that people who can afford to repay some of their debt to do so by having them file for Chapter 11, 12 or 13 rather than Chapter 7.
The first requirement of the Means Test is to compute your households Current Monthly Income, or CMI. The joke among bankruptcy attorneys is that CMI is neither current, nor monthly, not income. This is because it is an average of the last six months of only certain types of income. Social security, for example, isnt included. Unemployment probably isnt . So if you lost your job 3 months ago, the income you used to make is still part of your CMI. And if you start a new job on the first of the month and file on the 30th, that income is not part of your CMI.
But thats not the end of the computation.
And if they arent? Chapter 13 and Chapter 11 are still available.
Cramming Down A Car Loan In Chapter 13 Bankruptcy
If your car is worth less than what you owe, you might be able to reduce the balance of your loan to the value of the vehicle using a Chapter 13 cramdown. To qualify for a car loan cramdown, you must have purchased the car at least 910 days before filing your case.
In this situation, you’ll need to repay the entire cramdown amount in your repayment plan. Find out more about how car loan cramdowns work in Chapter 13 bankruptcy.
What Is Chapter 7 Bankruptcy
Chapter 7 is known as the liquidation bankruptcy because it discharges most of your unsecured debt. That includes , medical bills and personal loans.
Its the quickest, simplest and most common type of bankruptcy. According to the American Bankruptcy Institute , 63% of the 774,940 bankruptcy cases filed in 2019, were Chapter 7.
An even more encouraging bankruptcy statistic: 94.3% of Chapter 7 filings had their debts discharged, meaning forgiven.
You must pass a means test to qualify for Chapter 7 filing. The bankruptcy means test examines financial records, including income, expenses, secured and unsecured debt to determine if your disposable income is below the median income for your state. The means test income level varies from state to state.
You might be forced to sell any non-exempt assets, though several online sites claim that 96% of Chapter 7 filings are no asset cases, meaning there is not enough equity or value in the property for a trustee to sell it and pay off creditors.
Generally, the Chapter 7 process can be completed in four to six months.
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If You Pass The Chapter 7 Means Test
You should be aware that merely passing the means test doesn’t automatically qualify you to file for Chapter 7 bankruptcy. Another step exists. The court will look at two additional forms: Schedule I: Your Income and Schedule J: Your Expenses. If you have enough remaining to pay something to your creditors after deducting your actual monthly expenses from your current monthly income, the court might convert your Chapter 7 case to a Chapter 13 bankruptcy.
Also, just because you qualify under the means test doesn’t necessarily mean you should file for Chapter 7 bankruptcyonly that you can. Your decision to file for Chapter 7 bankruptcy should be made after considering factors not discussed in this article. For help, try The New Bankruptcy: Will It Work for You? By Attorney Cara O’Neill.
What Is The Income Limit For Chapter 7 For My State In 2021
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- What Is The Income Limit For Chapter 7 For My State in 2021?
If you want to file for bankruptcy relief, one of the first things that you must determine is whether you meet the income limit for Chapter 7. Chapter 7 might be the quickest, easiest, and least costly chapter of bankruptcy to file. However, debtors must meet the Chapter 7 income qualifications to receive a bankruptcy discharge. The bankruptcy discharge is why you file a bankruptcy case. A discharge releases you from the legal responsibility to repay a day. Without a discharge, you owe your debts as if you never filed for bankruptcy relief.
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Chapter 7 Bankruptcy Means Test Median Family Income Levels By State As Of November 1 2019
Editors Note: This post is outdated but remains available for reference purposes. To view a more recent post with revised means test figures, please click here.
Below you will find the median family income levels utilized by the United States Trustee Program for means testing individuals who have filed for bankruptcy relief. As of November 1, 2019, the median family income levels for Florida have risen, which generally benefits individuals who are in need of debt relief. The median income information is used by the bankruptcy court when determining whether or not an individual qualifies for relief under chapter 7 of the Bankruptcy Code, and also is used in determining the applicable commitment period for payment plans filed under chapter 13. If you are considering chapter 7 or chapter 13 bankruptcy, you should contact a Florida bankruptcy attorney such as Joseph Battaglia, immediately to discuss your situation. Attorney Battaglia offers free initial consultations for bankruptcy matters.
Each state has its own set of median income levels. The data for all U.S. states and U.S. territories, effective as of November 1, 2019, is shown in the chart below. These figures will change as of May 1, 2020, and should no longer be relied upon on or after that date.
Median Income figures for Bankruptcy Means Testing
| State |
Exceptions To The Means Test
There are two exceptions to the means test: Filers with more than 50% non-consumer debt dont have to take the means test, since the debt comes from business or profit motive.
Foohey said that exception doesnt apply to most people who file Chapter 7 bankruptcy. There are only two types of debt business and consumer. If someone does not own or run a business, thereby incurring debt in the course of that business, they should exclusively have consumer debt, she said.
Another is the Exception for Qualifying Service Members and Veterans. Because of passage of the 2018 HAVEN Act , the service income of disabled veterans, reservists on active duty and National Guard members arent included in household income calculations. Veterans and active-duty military may find themselves with a lot of financial challenges as they deploy or frequently move. But there are also a lot of veteran debt relief options and benefits.
People who derive their income solely from Social Security also dont have to take the means test.
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How To Fill It Out
Step 1: Fill in your case information.
In a box at the top of the form, youll fill in information related to your bankruptcy case. Enter your name, the bankruptcy court you filed in, and your case number if you have one.
You can look up which bankruptcy court you need to file in using the United States Courts Court Locator tool. Select Bankruptcy under Court Type and enter your ZIP code, and then click Go. If you dont yet have a bankruptcy case number, leave that field blank.
Step 2: Fill in your marital and filing status.
Youll then need to pick your marital and filing status from the following options:
- Not married
- Living in the same household and not legally separated
- Living separately or legally separated
Step 3: Fill in your income information.
Depending on your answer to the above, youll either need to fill out the form detailing only your income or detailing both your income and your spouses income separately in two columns.
Filling out the average monthly income section should be straightforward. Simply add up your income from the previous six months for each source. Then, divide each sources six-month total by six to get your average monthly income from that source.
Youll need to fill out your gross wages, which you should be able to find on your paystubs from the previous six months. Make sure you use the gross amount .
Step 4: Calculate your total annual income.
How Much Do You Have To Be In Debt To File Chapter 7
Home » Frequently Asked Questions » How Much Do You Have to Be In Debt to File Chapter 7?
You do not have to be in a specific amount of debt to file Chapter 7 bankruptcy. Your income might play a role in your ability to file for Chapter 7 bankruptcy protection, and you might be required to complete a means test to determine your eligibility.
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Can You Make Too Much Money To File For Bankruptcy
December 6, 2018 By The Law Offices of Craig L Cook
If you earn a high amount of income but are struggling to repay a substantial amount of unsecured debt, you might believe that your income disqualifies you from being able to file for bankruptcy. Can you make too much money to file for bankruptcy? The answer to this question is generally no. However, the bankruptcy chapters available to you will depend on whether you meet the means test and the amount of debt that you have. The Law Offices of Craig L. Cook can advise you on which chapter might be the appropriate choice for your income and your financial situation.
Cons Of Chapter 7 Bankruptcy
- Chapter 7 bankruptcy is the ultimate hit on your credit rating. It is your legal confession that, at one time, you could not manage debt. And it sticks with you for 10 years.
- You may lose non-essential property like certain luxury items, or even priceless family heirlooms that are sold to pay off creditors.
- You have to fill out a lot of forms, some of which can get maddeningly complicated.
- Say goodbye to your credit cards. So long, Capital One miles. Farewell, Marriott Rewards points. Whats in your wallet immediately after Chapter 7? Cash, an ATM card, and personal identification.
- If you dont have a mortgage, getting a mortgage after bankruptcy will be extremely difficult to obtain.
- You must be confident of the path forward. Completing the Chapter 7 process means youre barred from seeking Chapter 7 relief again for at least six years, dating from when you last filed for bankruptcy.
- Bankruptcy will not get you off the hook for alimony and/or child support. You also still have to pay off your student loans, IRS debt and fines.
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Pros Of Chapter 7 Bankruptcy
- Your out from under what likely was a heavy load of unsecured debts.
- State exemptions generally exempt most of your possessions from liquidation. After you file for Chapter 7, you will keep your salary and property you buy.
- It may be possible to obtain new lines of credit as soon as a year out from filing, but be ready to pay staggering interest rates.
- Some specialty lenders will take on so-called bad risks, an unfortunate term that fails to account for the integrity of someone who has taken the bold step of setting right his financial woes.
- Bankruptcy may make it easier to meet your court-ordered obligations. Also, bankruptcy wards off aggressive debt collectors that have no problem violating the collections guidelines.
Pushing Chapter 13 Bankruptcy
The reason you want to be aware of the differences between Chapter 7 and Chapter 13 bankruptcy is to make sure you dont get pushed into Chapter 13 bankruptcy.
Why would a bankruptcy attorney suggest a Chapter 13 bankruptcy when you qualify for a Chapter 7 bankruptcy?
Take a wild guess. Could it be about the costs associated with Chapter 13? Ill never tell.
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Qualifying For Chapter 13 Bankruptcy
Chapter 13 bankruptcy is the other common type of consumer bankruptcy. Unlike Chapter 7 bankruptcy cases, people who file for Chapter 13 bankruptcy will enter into repayment plans. They will then repay a portion of their debts for a duration of either three or five years.
People who are unable to pass the means test for Chapter 7 bankruptcy may instead file for protection under Chapter 13. However, this chapter also has eligibility guidelines for you to meet. In addition to being current on your tax filings, you must also have a sufficient income to meet your obligations under the repayment plan. As a high-income earner, you likely will have enough income to qualify. Finally, your unsecured debts may not exceed $394,725, and your secured debts, including your mortgage, may not exceed $1,184,200 under 11 U.S.C. § 109.
If you do not pass the means test under Chapter 7, and your debts exceed the limits for Chapter 13, you still have another option.
The Benefits Of Chapter 7 Bankruptcy
Many people are hesitant to seek bankruptcy protection because they are afraid of losing their personal property and possessions. Filing Chapter 7 bankruptcy can allow you to discharge rather than decrease your existing debt load. Additional benefits of Chapter 7 bankruptcy include:
- The large majority of people who file Chapter 7 bankruptcy are able to retain all of their personal assets, like their home and car.
- Many people filing Chapter 7 bankruptcy do not have nonexempt assets, which means all qualifying debts will be discharged, and you do not have to create or commit to a debt repayment plan.
- Most, if not all, debt collection activity must stop when your petition for bankruptcy is filed.
Another important benefit of filing for Chapter 7 bankruptcy is the peace of mind it brings its filers. For most people, the main goal of filing bankruptcy is to achieve a fresh financial start. With the help of a lawyer in your area, Chapter 7 bankruptcy is a simple way to achieve that goal.
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Your Total Bankruptcy Cost
Adding up all of our costs, youre looking at $350-$450 if you file pro se. Of course, its overwhelmingly likely that your case will be dismissed and youll be left on your own to face your creditors. With an attorney, an average Chapter 7 case can cost anywhere from $1,500 to $3,000. An average Chapter 13 case will run you from $3,000 to $4,000.
Consider that the average indebted household carries over $15,000 in alone, not to mention medical debt, personal loans, second mortgages on underwater homes, and other types of unsecured debt. In bankruptcy, youd pay pennies on the dollar toward that debt.
With that in mind, a few thousand dollars seems like a small price to pay.
How Do I Convert To A Different Type Of Bankruptcy
While a qualified bankruptcy attorney can help you decide whether to file for Chapter 7 or Chapter 13, you may need to convert to a different type of bankruptcy. You must qualify for Chapter 7 bankruptcy and pass a means test, otherwise youll need to file Chapter 13.
Some reasons for converting from Chapter 7 to Chapter 13:
- Chapter 7 is faster, and youll pay less than Chapter 13
- If youre having trouble with your mortgage, you can still face foreclosure in Chapter 7 in Chapter 13, you have stronger power against foreclosure
- You wont have to give up any property in Chapter 13, though most property is still exempt under Chapter 7.
Some reasons for converting from Chapter 13 to Chapter 7:
- Under Chapter 13, you have to pay back most of your debts in full, including spousal or child support
- A change in circumstances, such as a loss of a job or a serious illness, could make it difficult for you to keep up with Chapter 13 payments
- You might be forced to switch from Chapter 13 to Chapter 7 if you cant keep up with your payments, otherwise.
If you choose to convert from Chapter 7 to Chapter 13, you wont need to pay any conversion fees. The court will look at your income, however, to ensure youd be able to make payments under a Chapter 13 repayment plan. You also dont generally need any approval in advance to switch from Chapter 7 to 13, if you do it once and do it in good faith. Youll just have to file a motion with the court.
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Some Of The Assets That Are Exempt In Chapter 7 Bankruptcy Cases Include:
- Up to $500 worth of cash on hand or deposited at a bank
- One vehicle worth up to $4,000
- Up to $145,425 in equity in your primary home
- Up to $1,700 worth of jewelry
- Up to 75 percent of your wages
- Household items worth $625 or less per item, with a limit of $13,400 total for all household goods
- Up to $25,175 in personal injury compensation that youve received within 12 months of filing for bankruptcy
- Up to $2,550 in property that you use for your job or at your business
- Up to $1,325 in value of any assets that you can add to another exemption or use to keep any property that isnt otherwise exempt
- The full value of any retirement accounts you have, including pensions, IRAs, and other tax-exempt accounts
- The full value of any public benefits you receive
- The full value of any spousal or child support you receive
- The interest in a burial plot
