I just got big raise at work, but I still need bankruptcy. Should I file now or wait?

If your income increases and you need to file for Chapter 7 bankruptcy, you might want to file right away.

Question

I just got a big raise at work effective July 1st. Before I was making $3,800 per month, but now I am making $5,000 per month. Even though I am single and making more money now, I still cannot pay off my debt. I need to file for Chapter 7 bankruptcy. Should I file now or wait?

Answer

If you just got a big raise, but you still cannot pay your debts and need bankruptcy, you may want to file right away depending on your expenses and other circumstances.

The Chapter 7 Means Test

Your bankruptcy timing will be partially driven by the means test, which you must pass to qualify for Chapter 7. The means test looks at the income you earned within the six months prior to your filing date (this is referred to as your "current monthly income" or CMI -- the term is a misnomer, since it actually reflects your preceding income). If your income is less than the median income in your state, you automatically pass. (See Chapter 7 Means Test: Comparing Your Income to the State Median Income to figure out whether your income is above or below the state median.) If your CMI is higher than the state median, you must complete a more complicated analysis which also factors in your expenses. (For details on how the means test works, see The Chapter 7 Bankruptcy Means Test.)

The lower your income in the six months preceding your bankruptcy filing, the easier it is to pass the means test. Depending on your circumstances, it's possible that if you wait to file for bankruptcy, your increased income will mean you cannot pass the means test.

Here's how this might work.

If you file for bankruptcy on July 5th right after your raise goes into effect, as shown below, your current monthly income is $3,800 per month. This is less than the California median of $4,041.50, so you pass the means test without having to complete the more complicated analysis.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

 

Total Income

$22,800

$3,800

$3,800

$3,800

$3,800

$3,800

$3,800

File Jul 5

     

Average Income

$3,800

If you wait until August 5th to file, as shown below, your CMI increases to $4,000 per month. This is still less than the California median of $4,041.50, but just barely. You pass the means test.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

 

Total Income

$24,000

 

$3,800

$3,800

$3,800

$3,800

$3,800

$5,000

File Aug 5

   

Average Income

$4,000

If you wait until September 5th to file, as shown below, your CMI increases to $4,200 per month. This is now greater than the California median of $4,041.50. You'll have to complete the more complicated analysis which takes into account your expenses.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

 

Total Income

$25,200

   

$3,800

$3,800

$3,800

$3,800

$5,000

$5,000

File Sept 5

 

Average Income

$4,200

It probably makes sense to talk to a bankruptcy attorney right away. A bankruptcy attorney can tell you if waiting to file will jeopardize your chances of qualifying for Chapter 7 bankruptcy, or not.

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