This article is part of my bankruptcy alphabet series
Here’s something many don’t realize. You can earn above the median income for your location and household size and still qualify for Chapter 7 bankruptcy. What’s that, you say? You’ve read online (or your “Friend” told you) that if you’re below the median income, you can file for bankruptcy without doing a repayment plan (such as in a Chapter 13 case) and if you’re above it, you cannot.
A Little Knowledge Can Be Dangerous
The eligibility requirements for filing bankruptcy, particularly Chapter 7 are extremely complex thanks to the changes in the laws that went into effect in 2005. The median income is a part of the “Means Test” analysis which is ONE of the tests used to determine eligibility. It is possible to be below the median income and still not be eligible for Chapter 7, and it is possible to be above the median income and qualify.
Below Median Income Doesn’t Mean Automatic Qualification
The median income is merely the starting point. If you are below the median income, for the income you received from ALL sources EXCEPT social security in the six calendar months prior to commencing the bankruptcy case, then you “pass” the means test (or, more accurately, the means test will not apply in that case).
However, you can be below the median and your budget of “actual” current income and expenses showing surplus income that could render you unable to remain in a Chapter 7 case.
The Means Test and Why Above-Median Doesn’t Mean Automatic Disqualification
If you are above the median income, then the means test must be performed. The means test is a mind-numbingly complex, and somewhat random, set of calculations that includes certain allowed IRS expense deductions from your income, and other actual expense deductions, such as mortgage payments, etc. After going through the test, if you are showing the ability to make a certain amount of payments to your creditors, a “presumption of abuse” will arise in the Chapter 7 case and you may need to either switch to a Chapter 13 repayment plan, or have your case dismissed.
Similar to the under-median case above, if you pass the means test as an above-median income debtor, you can still be ineligible for Chapter 7 based on your actual current income and expenses if they are showing a surplus available to pay your creditors, based on allowed expense criteria.
See an Attorney
In short, it is virtually impossible to correctly anticipate what will happen in your case without having a qualified bankruptcy attorney represent you, not to mention correctly completing the required means test and other forms.
For others writing on the letter “M” see:
- Matrimonial Law in Bankruptcy Philadelphia Suburban Bankruptcy Lawyer, Chris Carr
Means Test Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Means Test New York Bankruptcy Lawyer, Jay S. Fleischman
Meeting of Creditors Colorado Springs bankruptcy Attorney Bob Doig
Modify Northern California Bankruptcy Lawyer, Cathy Moran
Monthly Income Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein
Mortgage Arrears Hawaii Bankruptcy Lawyer, Stuart T. Ing
Mistakes Cleveland Bankruptcy Attorney, William (Bill) Balena
Marriage San Francisco Bankruptcy Lawyer, Jeff Curl
Members of Household Wisconsin Bankruptcy Lawyer, Bret Nason
Mortgages and Bankruptcy Taylor, Michigan Bankruptcy Attorney Chris McAvoy - Means Test-Marin County Bankruptcy Attorney Cate Eranthe
- Median Income–Livonia Michigan Attorney, Peter Behrmann
Image Courtesy of Double–M
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About Mark Markus
