Qualifying for Chapter 7 Bankruptcy if Your Income Is High

Even if your income is high, you still might qualify for Chapter 7 bankruptcy.

Updated By , Attorney

You'll qualify for Chapter 7 bankruptcy if you are able to pass the "means test," and you'll pass if you can show that your gross income is less than the state median for a family the same size as yours (double the amount you've made over the last six months before comparing the figures).

Not everyone has to take the means test, however. If your income is too high, find out if you're exempt from taking the means test. If you're not, you'll still have another chance. You'll still pass if, after deducting your reasonable living expenses and other allowed payments, you don't have enough remaining to make reasonable payments to creditors through a Chapter 13 repayment plan (sometimes called Part Two of the means test or the "ability to pay" part of the test).

When going through the steps above, be sure to keep in mind the following things because they often help people pass the Chapter 7 means test:

  1. Some states' median income is significantly higher than others.
  2. The number of your dependants matters because the state median income is calibrated for household size in bankruptcy.
  3. If your debts are primarily business, not consumer debts, you'll be exempt. 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. Learn more about small businesses in bankruptcy.
  4. Disabled veterans who incurred debt primarily when on active duty or performing a "homeland defense activity" are exempt.
  5. A member of the military reserve or National Guard on active duty or on active duty within the last 540 days is exempt.
  6. Ongoing secured debt payments can be deducted under Part Two of the means test, so a high mortgage payment could mean you won't have enough income left to fund a repayment plan.
  7. If you have lots of overdue payments on a mortgage, car loan, attorney fees, or other secured property, you can deduct them in Part Two of the means test (high arrearages might mean you can't fund a Chapter 13 plan).
  8. Priority debt such as back child support or back taxes aren't dischargeable and can be deducted in Part Two of the means test.

If your income prevents you from filing for Chapter 7 bankruptcy, you might be able to file for Chapter 13 bankruptcy. A bankruptcy lawyer is in the best position to explain your bankruptcy options and many offer the first consultation free.

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