How Much Can You Make & Still File Bankruptcy?
Prior to 2005, your income as a debtor did not matter in terms of your ability to file bankruptcy. Legislation introduced in 2005 changed that, as you must now have a low enough income to qualify to file Chapter 7. Qualification standards vary from state to state, and a qualifying income in one state may be too high for qualification in another. Your amount of legitimate and necessary expenses can also affect whether or not you qualify.
Other People Are Reading
-
Chapter 13 Bankruptcy
-
If you want to file Chapter 13 bankruptcy, the income tests do not apply to your case. You must make payments to creditors in a Chapter 13 case, so the courts actually prefer that you have a steady and regular income to complete the plan payments. While income doesn't matter in terms of qualification in a Chapter 13 case, it does determine the length of your payment plan. If your income is higher than the median in your state, you must make payments for five years. If your income falls below the median, you only need to make 36 months of payments.
Current Monthly Income
-
By comparing your current monthly income to the median income in your state, you can determine if your income disqualifies you from filing Chapter 7 bankruptcy. Bankruptcy Form 22A provides a worksheet for you to determine your current monthly income for court purposes. By comparing this number to court-provided data regarding the median income by household size in your state, you can see if you are above or below the median. Above-median debtors typically have to file Chapter 13 instead of Chapter 7.
-
Disposable Income
-
Bankruptcy Form 22A has an additional way for above-the-median debtors to qualify for Chapter 7. If the amount of money you have left over every month after necessary expenses such as food and shelter is below a court-defined level, the court will qualify you for Chapter 7. Since a Chapter 13 bankruptcy requires regular payments, if you do not have regular monthly income available to make payments into the plan, it will fail. As a result, debtors with low disposable income are allowed to file for Chapter 7.
Income After Discharge
-
Generally speaking, a bankruptcy case is a snapshot of your financial situation on the day you file. However, in certain situations, income you earn after your bankruptcy discharge can derail your case. If you file Chapter 7 bankruptcy and receive an inheritance within 180 days, the court retains the right to that money, subject to the exemptions of your state. For example, if your state has a bankruptcy exemption allowing you to keep $10,000 in cash and you inherit $100,000 90 days after your case closes, the court may send you a bill for up to $90,000 of that inheritance.
-
