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Low Income Bankruptcy: Find the Option for You

4 minute read Upsolve is a nonprofit tool that helps you file bankruptcy for free. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card. Explore our free tool

In a Nutshell

There are special options available to low-income people filing for bankruptcy. Find out if one is right for you.

Written by Kristin Turner, Harvard Law Grad
Updated October 14, 2020

You may be interested to know that there is a low income bankruptcy option for getting out of debt. Chapter 7 of the Bankruptcy Code is often referred to as the low income bankruptcy option for individuals and couples who are struggling with debts. By filing a low income bankruptcy case, you might be able to get rid of all your unsecured debts so that you can recover and rebuild after a financial crisis.

However, if you are searching for a low income bankruptcy option, you probably do not have the funds to pay a Chapter 7 bankruptcy attorney to file a low income bankruptcy case.

We have good news for you!

Upsolve is a non-profit organization that helps individuals file for Chapter 7 debt relief without an attorney. We provide guidance and help in filing a low income bankruptcy case without charging you a service fee. We provide the bankruptcy forms and guide you step-by-step through the process of filing a Chapter 7 low income bankruptcy case.

If this sounds like an option you want to pursue, take this screener to begin Upsolve's free bankruptcy process.

Don’t believe us when we tell you that there is a low income bankruptcy case you can afford to file? Watch past users who are just like you explain how the Upsolve process works and how they received a second chance by filing a Chapter 7 low income bankruptcy case.

You can receive a bankruptcy discharge too, even if you cannot afford to hire a Chapter 7 attorney to file a low income bankruptcy case for you.

Why is a Chapter 7 Bankruptcy Case Considered a Low Income Bankruptcy Option?

When Congress passed changes to bankruptcy laws in 2005, legislators included an income test for Chapter 7 cases. Essentially, they wanted to ensure that Chapter 7 was a low income bankruptcy option.

The laws were designed to prevent bankruptcy fraud by ensuring only people who truly could not afford to pay their debts would have a low income bankruptcy option under Chapter 7. Therefore, Congress created a Means Test that debtors must complete to determine if they are eligible to file a low income bankruptcy case.

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What is the Means Test?

The Means Test is a bankruptcy form that compares the median income of a household of your size in your state to your current monthly income. If you “pass” the Means Test, you are eligible for a low income bankruptcy under Chapter 7.

Completing the Means Test involves several steps including:

Calculating Current Monthly Income

The first step is to calculate your current monthly income. Your current monthly income is the average of all countable sources of income received within the household for the past six months.

Examples of countable sources of income include:

  • Wages

  • Salaries

  • Bonuses

  • Commissions

  • Business Income

  • Retirement Income

  • Unemployment Compensation

  • Pensions

  • Rental Income

  • State Disability Insurance

  • Annuity Payments

Even if you and your spouse are not filing a joint Chapter 7 petition, you must include your spouse’s income in current monthly income because the Means Test examines “household income.”

You divide the total of all countable income for the past six months by six to determine your current monthly income.

Comparing Current Monthly Income to the Median Income

To determine if you are eligible for a low income bankruptcy case under Chapter 7, you compare your current monthly income to the median income for your state. You can find the current median income totals (they are periodically revised) on the U.S. Trustee’s website.

If your current monthly income is below the median income, you “pass” the Means Test and may proceed with a low income bankruptcy case.

However, if your current monthly income exceeds the median income, you must continue to the second section of the Means Test.

Calculating Disposable Income

The second section of the Means Test calculates your projected disposable income. Disposable income is the amount of money you have to pay your debts through a Chapter 13 repayment plan.

Disposable income is calculated by deducting allowable expenses from your current monthly income. Only expenses that are approved may be used on the Means Test.

Examples of expenses that you may deduct from current monthly income include:

  • Health Insurance Premiums

  • Income Taxes

  • Medical Expenses

  • Food

  • Clothing

  • Car Payments

  • House Payments

  • Rent

  • Personal Care Products

  • Housekeeping Supplies

  • Childcare Costs

  • Transportation Costs

  • Mandatory Contributions to Retirement Accounts

  • Alimony Payments

  • Child Support Payments

  • Life Insurance and Disability Insurance Payments

However, some of your monthly expenses may not be included on the Means Test. For example, if you pay $200 a month for gourmet dog food and another $100 a month in pet grooming, you will not likely be allowed to use these amounts as expenses. In addition, some of the allowable monthly expenses are limited.

Do You Have Enough Disposable Income to File Under Chapter 13?

When you complete the second section of the Means Test, if your disposable income is a negative amount, you are eligible to file for a low income bankruptcy under Chapter 7. However, if you have any disposable income, you must continue the test to determine if you have sufficient disposable income to fund a Chapter 13 plan.

Some individuals with a small amount of disposable income may still qualify to file for a low income bankruptcy under Chapter 7. It depends on all the circumstances involved, including the individual’s debts, assets, and other financial affairs.

You Qualify to File a Low Income Bankruptcy Case Under Chapter 7

A Chapter 7 low income bankruptcy case is considered a liquidation bankruptcy case. You do not have sufficient disposable income to fund a Chapter 13 repayment plan. However, the Chapter 7 trustee must review your assets to determine if you have equity in assets that can be liquidated to pay your unsecured debts.

Don’t panic! You are entitled to claim some or all of the equity in your property as exempt by using either federal or state bankruptcy exemptions.

In most low income bankruptcy cases filed, the bankruptcy exemptions cover all equity in the debtor’s assets. In other words, the equity is protected from the court and the creditors. These cases are referred to as no-asset Chapter 7 cases because the debtors keep all their property.

It is very important to examine the equity in your property and the available bankruptcy exemptions before filing a low income bankruptcy Chapter 7 case. Even though most low income bankruptcy Chapter 7 cases are no-asset cases, you want to review this part of the case carefully.

Do You Think a Low Income Bankruptcy Case Is Right for You?

If you are ready to take the first step on the path to a debt-free future, take our screener to begin using Upsolve's free bankruptcy tool.

Filing a low income bankruptcy Chapter 7 case may the best option you have for getting out of debt.

With Upsolve’s unique bankruptcy tool, you can file a Chapter 7 low income bankruptcy case without hiring a bankruptcy lawyer. We understand that some individuals can't afford to hire an attorney for assistance with a bankruptcy case. That is why we created this non-profit organization.

We want to help individuals just like you who need assistance in getting rid of debt, but who cannot afford to hire a Chapter 7 bankruptcy attorney.

You can do this! You can get out of debt and stop creditor harassment. Let us show you how we can help you achieve your dream of being debt-free.

Written By:

Kristin Turner, Harvard Law Grad


Kristin is a recipient of Harvard Law School’s Public Welfare Foundation A2J Tech Fellowship. At Harvard Law, she served as a member of the Harvard Defenders, the Women’s Law Association, and the Harvard Law Negotiation Review. She was the 2016 – 2017 president of the Harvard Bla... read more about Kristin Turner, Harvard Law Grad

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can't access their basic rights when they can't afford to pay for help. Combining direct services and advocacy, we're fighting this injustice.

To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.