Even if you make too much money, you might still be able to get the debt relief you need by filing for chapter 7 bankruptcy. This may not be an insurmountable obstacle, however, so read on to learn more about means testing and income reductions.
The Means to Pay
Several years ago, there were no income provisions in the bankruptcy codes, and that led to a lot of people who did have the means to pay filing for bankruptcy, sometimes repeatedly. In an effort to reduce high-income consumers from filing bankruptcy when their debt loads got too high, the codes were rewritten to introduce limits on income. This act changed the way people qualified and filed for both chapters 7 and 13, but it should be mentioned here that there are no such income limits for those filing a chapter 13 bankruptcy.
Where Do You Live?
With these changes, the amount of money you can earn and still file a chapter 7 bankruptcy is based on where you live. Each state has their own median incomes, so the so-called means test compares your income with families of the same size in your own state.
The Means Test
You might want to consider what the phrase "declaring bankruptcy" means. It actually means that you are declaring that you do not have enough income to pay your debts. The new rules, in an attempt to prevent well-off filers from declaring bankruptcy, might also affect you if your income is higher than your state median income.
The actual means test is part of your bankruptcy filing package, but your bankruptcy attorney will likely run a simulation of your income, family size, debt, and more before the paperwork is filed with the court. You can access a means test simulator to help you get an idea of what to expect.
This is one occasion when you might want to actually reduce your income for bankruptcy filing purposes. Here are a few things to try:
1. If you are filing jointly, examine the income of both parties and the debts to determine if one party at a time might be able to file and stay under the income limits.
2. File a chapter 13 instead of a chapter 7.
3. You can move to another state that has a higher income limit, but pay attention to the residency requirements for filing; every state is different.
4. If you have larger than normal debts you might be able to deduct some of your obligations that would remain after your bankruptcy is final. Some of those include debt obligation like a higher mortgage, special medical needs for an adult or child, tax debts, and more.
Speak to your bankruptcy attorney to learn more about the means test for chapter 7 income.