Your Monthly Income Is A Factor In Qualifying For A Chapter 7 Bankruptcy

There are income qualifications for filing Chapter 7 bankruptcy.  If you are over the median for your state then you are subject to a means test.  If it is determined that you have the ability to pay back at least 25% over the next three to five years, then you will not qualify for Chapter 7 relief.  The narration below talks about how it all works.

 Jesse Barrientes: Can I make too much money to file a Chapter 7?

David Siegel: You can’t make too much money.  If you are over the median for your family size and your locality, then you have to submit to a means test.  The means test is basically a determination as to whether or not you have the ability to pay back a portion of your debt or whether you do not have the ability.  And if you make over the median, you still might pass the means test whereby you don’t need to do a Chapter 13 and you can eliminate your debt.  However, if your income is such and you have the ability to pay a portion of your debt over a three to five-year period, then you are not going to be allowed to get a fresh start and you are going to be required to do a bill consolidation.

Jesse Barrientes: And that was a big change oh, six, seven, eight, I forget how long it’s been.

David Siegel: October 17, 2005 is when that law came into place and it basically wanted to make sure that those who needed a fresh start were granted a fresh start but those who had the ability to pay didn’t get out of their obligation.  Those that had the ability were forced to repay something over a three to five-year period.  So it’s a very fair law going forward.  The only unfair part is that the ability to pay is based on IRS guidelines which don’t really measure up to what people actually spend on food, clothing, transportation and housing.  So you have to live within the IRS guidelines to pass that test.  But most clients that I see, Jesse, are passing the test without a problem.