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You may be wondering who can and cannot file under Chapter 7 of the Bankruptcy Code. If so, you are not alone. Many people wonder how to qualify for Chapter and if they can get a bankruptcy discharge by filing Chapter 7.
For many individuals and couples who are in overwhelming debt, filing a bankruptcy case is the only way to get out of debt. Bankruptcy is nothing to be ashamed of or feared. In fact, bankruptcy laws were created to help the “unfortunate debtor” a way to move forward “unhampered by the pressure and discourage of preexisting debt.”
Therefore, if you need help to get out of debt, filing bankruptcy might be the best thing you can do for yourself and your family. You can give yourself the fresh start you need.
If you are worried that you cannot afford to hire a bankruptcy attorney, you may qualify for a program through Upsolve, a non-profit organization that helps low-income families get debt relief. If you need a fresh start, click here to start Upsolve's free bankruptcy process.
New Bankruptcy Law Introduces Income Limits for Chapter 7 Cases
Several requirementsmust be met before you can obtain a bankruptcy discharge under Chapter 7 of the Bankruptcy Code. For example, you must be an individual or a business entity to file for relief under Chapter 7.
In addition, you must complete a credit counseling course within 180 days before filing your Chapter 7 petition. Debtors may not file under Chapter 7 or other bankruptcy chapters if a bankruptcy case has been dismissed within 180 days for failing to appear in court or failing to comply with court orders.
However, one of the requirements that intimidate many people is the Chapter 7 income limits. Chapter 7 income limits were introduced when the bankruptcy laws were revised in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
BAPCPA introduced Chapter 7 income limits, but the revisions in the bankruptcy code do not prevent low-income individuals from filing for debt relief. The Chapter 7 income limits are only intended to prevent debtors who can afford to pay some of their debts from filing Chapter 7. The limits were included to reduce bankruptcy fraud.
Let’s look at the subject of Chapter 7 income limits more closely and how those limits impact your bankruptcy filing.↑ Back to top
The Chapter 7 Means Test
The Means Test was introduced in BAPCPA to measure a debtor’s income to determine if the debtor qualifies to file under Chapter 7. There are a few narrow exceptions in which a debtor may qualify for Chapter 7 even if the debtor “fails” the Means Test. However, in most cases, you must “pass” the Means Test to receive a bankruptcy discharge under Chapter 7.
The Chapter 7 income limits do not apply to cases involving mostly business debts. Therefore, if the majority of your debts are business debts, you may be exempt from the Chapter 7 income limits.
To pass the Means Test, either your median income or your disposable income must be under the Chapter 7 income limits. If your income exceeds the median level for your state or area, you must proceed with the second portion of the test that measures disposable income.
Debtors who have disposable income that exceeds the Chapter 7 income limits are not eligible to obtain a bankruptcy discharge under Chapter 7. The U.S. Trustee’s Office examines each Chapter 7 case to determine if the debtor’s income is below the Chapter 7 income limits.↑ Back to top
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How Do I Know if I Exceed the Chapter 7 Income Limits for Median Income?
The first portion of the Means Test measures your average monthly income to the median income in your state to determine if your income exceeds the Chapter 7 income limits.
Your current monthly income is based on the total of income from all sources during the six months before filing your Chapter 7 bankruptcy petition. To calculate your current monthly income, you add all countable income during the six-month look-back period and divide the total by six. The average monthly income is multiplied by 12 to calculate your median annual income.
You compare your median annual income to the current Census Bureau Median Family Income by Family Size. The figures are adjusted periodically, so you must make sure that you are using the most current Chapter 7 income limits. Current Median Family Income figures can be located on the U.S. Trustee’s website.
If your income is below the current median income, you pass the test. However, if your income is above the median income, you fail the test because your income is above the Chapter 7 income limits.
However, do not worry, you have a second chance to pass the Mean Test by lowering your net income below the Chapter 7 income limits.↑ Back to top
Are You Ready to Find Out If Your Income is Below the Chapter 7 Income Limits?
Not everyone will qualify to file under Chapter 7 because of the Chapter 7 income limits. If you are ready to find out if you qualify to wipe out your debts in Chapter 7, we encourage you to begin the bankruptcy process with Upsolve.
We can help you determine if your income is below the Chapter 7 income limits. If your income exceeds the Chapter 7 income limits, we can help you complete the second portion of the Means Test. You might still qualify for a bankruptcy discharge if you pass the second section of the test.↑ Back to top
Chapter 7 Income Limits for Disposable Income
The second portion of the Means Test measures your disposable income. Disposable income is the amount of income you have each month to pay toward your debts after deducting allowable living expenses.
To calculate your disposable income to compare to the Chapter 7 income limits, you deduct certain expenses from your gross income. However, you cannot deduct every expense you may pay each month, and some expenses are limited based on national standards.
For example, you probably will not be able to deduct $250 for cigarettes each month or an expensive membership to a fitness club. Money paid for items that are discretionary are mostly excluded from the Means Test.
However, many of your monthly expenses can be included in the Means Test to lower your disposable income. Expenses you might use to meet the requirements for Chapter 7 income limits include:
Court-ordered payments (alimony and child support)
Involuntary employment deductions, such as mandatory retirement plans, uniforms, and union dues
Secured payments for your house and car
Some expenses are limited. For example, the maximum amount you can deduct for food each month for three people is $742 (as of May 1, 2018).
The maximum amounts for food, housekeeping supplies, apparel, personal care products & miscellaneous expenses are adjusted periodically. As with the figures for the median income figures, you should check the U.S. Trustee’s website for the current expense limits.↑ Back to top
Is Your Income Below the Chapter 7 Income Limits?
The above summary is only a fraction of the information you need to know when completing the Chapter 7 Means Test. A bankruptcy attorney will complete the Means Test and determine if you meet the Chapter 7 income limits for you.↑ Back to top
But I Cannot Afford to Pay a Bankruptcy Attorney!
What if you cannot afford to pay a bankruptcy attorney for help? Can you file Chapter 7 without an attorney? YES!
Upsolve is a non-profit company that helps low-income individuals who cannot afford to hire a bankruptcy attorney. It is our mission to help people just like you who need debt relief, but do not have the money for an attorney.
If you qualify for our program, our system takes you through each step of the process to complete the Means Test. In most cases, if you qualify for our program, your income is below the Chapter 7 income limits.
Start your journey today with Upsolve to obtain the fresh start you need to face the future debt free.↑ Back to top