Income Limits for Bankruptcy
Prior to 2005 almost any debtor could qualify for bankruptcy. New legislation in that year implemented certain tests you must pass to file bankruptcy (as of January 2011). For Chapter 7 bankruptcy, qualification depends on your annual income and your disposable income. For Chapter 13 bankruptcy, you must qualify based on the amount of your debt.
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Chapter 7 Median Income Limits
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Chapter 7 bankruptcy is sometimes called a "liquidation" bankruptcy because you may have to turn over some assets to the court for sale to benefit creditors. However, if you have little or nothing in the way of valuable assets, you may receive a discharge of your debt for nothing in return. To qualify for this benefit, you must have an annual income below the median income for a similarly-sized family in your state. If your income is above this state median income, you must pass the disposable income limit test.
Chapter 7 Disposable Income Limits
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The disposable income limit test, also known as the "means test," is another way to qualify for Chapter 7 bankruptcy. If your annual income, less court-approved expenses, falls below a certain level, you can file Chapter 7. If your income under this formula is too high, then the bankruptcy trustee will typically seek to dismiss your Chapter 7 petition and force you to choose Chapter 13 bankruptcy instead.
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Chapter 13 Income Limits
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Unlike with Chapter 7 bankruptcy, Chapter 13 bankruptcy places no income restrictions on debtors. Chapter 13 is intended for debtors with regular incomes who can afford to make monthly payments to creditors via a court-approved payment plan. As long as you keep making payments in a Chapter 13 bankruptcy you do not have to turn over any assets to the court as you might in a Chapter 7 case.
Chapter 13 Debt Limits
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While Chapter 13 bankruptcy has no income limit, if you have too much debt you cannot file under Chapter 13. The courts impose separate limits on the amount of secured and unsecured debt you can carry. Secured debt is debt such as a car or house loan in which the lender has a legal interest in the property you borrow against. Unsecured debt is any type of general loan such as a credit card in which the lender does not have a lien against any specific property. As of January 2011, the secured debt limit in a Chapter 13 bankruptcy is $1,010,650, while the unsecured limit is $336,900.
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