When you are considering filing Chapter 7 bankruptcy, you will have to prove your eligibility by taking a means test. The figures are based on the median income for your household in your state and after certain allowed expenses are deducted. Disabled veterans are excluded from having to take the means test if the debt was incurred while on active duty.
If your income is below your state’s median, then you will qualify for Chapter 7 without any further evaluation. The debtor’s income is determined by adding the gross income for the previous six months before filing, doubling the amount and dividing by 12 to get your average monthly income.
Sources of income can be:
- wages, salary, bonuses, tips, bonuses
- gross income from a business or farm
- regular child support or alimony
- unemployment, workers compensation or retirement income
- annuity, interest, dividends, royalties
Your disposable income will be determined after deducting your expenses:
- mandatory payroll deductions
- child support and alimony
- tax debt
- home and vehicle payments
- any necessary living expenses under IRS regulations
If it is found that you have too much disposable income, you may be required to file Chapter 13 instead and set up a repayment plan to your creditors.
The means test was instituted by the Bankruptcy Protection Act of 2005 to prevent high wage earners from liquidating all their debt. Those that no longer qualify under the new act will have to file Chapter 13 bankruptcy and repay a portion of their debt. You can find the average median income figures at United States Department of Justice website. https://www.justice.gov/ust/means-testing
If you have questions as to whether or not you will qualify for Chapter 7 to wipe out your debt, contact a Houston bankruptcy attorney to discuss your unique situation and find out what options you may have.