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What is the income limit to file chapter 7
When debt strangles you, you may consider Chapter 7 as your only option. It’s a legal process which was created especially to show people how to get out of the debts and have a new beginning. Nonetheless, there are exclusions, and this chapter is primarily for those who are honestly incapable of paying all their debts. The principal barrier is the means test, which is used to determine whether you qualify or not due to your financial status. Therefore, what is it that you are supposed to do to know if you are eligible? Let’s break it down.
So what is a Chapter 7 Bankruptcy?
The 7th Chapter of the Bankruptcy Code, which is called “liquidation” bankruptcy, allows debtors to wipe out most of their unsecured debts, such as credit card debts, medical bills, and loan debts that are not secured. In that case, the bankruptcy trustee may sell some of the valuable items which do not fall under exemption to pay the creditors. It is a “go-to” option due to the relatively short duration and quick eradication of debts.
The Role of the Means Test
The means test is the dominating factor to be used for qualification under Chapter 7. It will make the determination if your income is low enough for you to file for Chapter 7 bankruptcy.
- Compare Your Income to the Median: You start the means test by comparing your average monthly income for the last six months with the median income of a household of your size in your state. If your salary happens to be less than the median, you are eligible by default.
- Detailed Income and Expense Analysis: Should the median of your income exceeds your income, you should perform a deeper analysis in order to reveal if you have the possibility to return some of your debts. This section of the test subtracts certain monthly costs from the current monthly income in order to determine the monthly “disposable income”. If it is below this amount, you may still be eligible for Chapter 7.
Income Considerations and Calculations
- Income Sources: Wages, salary, tips, bonuses, overtime, and income from self-employment are included in means test income. It is inclusive of earnings from investments, rental properties and some kinds of pensions or retirement plans.
- Exclusions from Income: Such sources of income as social security benefits are exempt from means test.
State Specific Variations
Because the median income depends on the size of the household and the state where you live, it is important to check the particular thresholds that apply to you. These numbers are recurrently renewed to observe the economy fluctuations.
What If You Have More Income Than the Limit?
When your income is too high and you fail the means test you may not be eligible to file for Chapter 7 bankruptcy. Nonetheless, you can pursue another option, Chapter 13 bankruptcy, which is based on settling the debts to the creditors via scheduled repayment plan.
Conclusions and What’s Next?
Determining whether you are eligible for Chapter 7 bankruptcy can be quite complicated. If you are thinking about this type of bankruptcy, it would probably be a good idea to seek advice from a bankruptcy lawyer who can offer guidance based on your particular situation. They can assist you in passing the means test and in looking through all the means of managing your debt.
