Do I Qualify for a Chapter 7 Bankruptcy?
The most common question clients ask me is whether they qualify for a Chapter 7 bankruptcy. Congress changed the bankruptcy laws in 2005 to make it a bit more difficult with people of certain income levels to file Chapter 7 bankruptcy. Congress reasoned that if you can afford to pay back a decent Chapter 13 plan payment to your creditors, you should be in a Chapter 13 rather than a Chapter 7 to ensure that all debtors are putting forth their best efforts to repay their creditors.
How Does It Work?
1. First determine if you make more or less than the median income for the county and state in which you have resided for the most time in the last 180 days. To determine your income, take your last six months of income from ALL sources and average them. The Georgia median income for a family of 2, 3, and 4 is $53,381, $56,647, and $69,082, respectively. If your average income determined from the last 6 months is less than the median income, you “pass” the means test and qualify for a Chapter 7 bankruptcy.
2. If your income is above that amount, you and your attorney will have more paperwork to complete to see if you can still qualify. Don’t worry. I handle all the heavy lifting, but it is especially important to hire an attorney with extensive experience getting high-income individuals past the means test. Your attorney will look through your expenses and paycheck to deduct items like taxes, health insurance, housing costs, transportation costs, child care, secured payments, and more.
What Qualifies as Income?
This is where most people make a mistake in determining whether they qualify for a Chapter 7 or not. Income includes ALL sources of income – not just your W2 wages. Common incomes sources that people often forget to tell their attorney about are unemployment income, sale of stock, business income, gifts from family members or friends, rental income, and any other amounts paid to you to help pay for your household expenses.
Don’t let the Means Test scare you away. Call me for a free consultation, and I’ll let you know whether you qualify or not.