Generally, you qualify for Chapter 7 bankruptcy if you are able to pass the "means test." In order to do that, you must be able to show that your current monthly income is less than the state median. If your income is higher than the state median income, you can still pass the means test if, after deducting your reasonable living expenses and other certain payments, you don’t have enough left over to pay creditors through a Chapter 13 repayment plan (this is sometimes called Part Two of the means test or the “ability to pay” part of the test).
If your income is high, you still might qualify for Chapter 7 bankruptcy. Here are some situations when you might qualify, even if your income is on the high side:
- The median income of some states is significantly higher than in others. If you are in a state with a high median income, your "high income" may not prevent you from passing the means test.
- You have lots of dependants. The state median income is calibrated for household size. If you have many dependants, your “high” income might still be below the median for your state.
- Your debts are primarily business, not consumer debts. Keep in mind that mortgages are consumer debt. However, tax debts, even personal income tax debts, come under the “business” label. Other business debts include credit card debts you incurred to buy computers, other equipment, furniture, or supplies for your business or a personal loan to buy inventory.
- You are a disabled veteran and you incurred your debt primarily when you were on active duty or performing a “homeland defense activity.”
- You are a member of the military reserve or National Guard and you are on active duty or have been on active duty within the last 540 days.
- You have high mortgage or car payments. Because ongoing payments on secured debts may be deducted under Part Two of the means test, if you have a high mortgage payment, it may mean you do not have enough income left to fund a repayment plan.
- You have high lots of overdue payments on a mortgage, car loan, attorney fees, or other secured property. Again, you can deduct these in Part Two of the means test, so high arrearages may mean you cannot fund a Chapter 13 plan.
- You owe back child support or back taxes. Again, these may be deducted in Part Two of the means test.
If your income prevents you from filing for Chapter 7 bankruptcy, you can file for Chapter 13 bankruptcy.