Your income and chapter 7 bankruptcy

As you probably know by know your monthly income has a significant impact in the bankruptcy process. The income you have now can make the difference between chapter 13 and chapter 7 bankruptcy.

Many of you have the impressions that you need to be penniless to apply for Chapter 7.This is false. You can make a consistent amount of money every month and have debts that cannot be paid. This is where the Means test appears.

The chapter 7 means test was designed to limit the use of Chapter 7 bankruptcy to those who truly can’t pay their debts. The principle is simple: You calculate the disposable income by deducting the monthly expensed from your monthly income. Then you compare the disposable income with the median income per family on your state (of course for the same number of members).If you disposable income is lower than the state median you qualify for a chapter 7 bankruptcy.

If not you will be redirect to Chapter 13 bankruptcy which require paying your debts under payback plan.

In conclusion: Yes your income can be important factor when you want to fill for Chapter 7 but is not the decisive factor. A person who make 4000$ in New York may qualify for Chapter 7 while another person that makes 3000$ in Alabama may not. In the end the disposable income is the thing that matter mostly.