Does Your Income Matter In Bankruptcy, And How Does It Affect Your Case?

In a typical bankruptcy your income matters. That may not be a surprise to you–you probably already have an idea that if you make too much money, bankruptcy may not be available to you. But the question of income is more complex than that, and the effect of making too much or too little, can often vary depending on what kind of bankruptcy you are filing.

Chapter 7 and Income

There is no set amount that is “too much” to make in a chapter 7 case–however, if you make too much, you could be barred from filing a Chapter 7 bankruptcy because of the Means Test. The Means Test is a formula that calculates whether you make too much to qualify for a Chapter 7.

The Means Test is complex, and takes into account the average income in your state, your expenses, and your disposable income, to calculate whether you qualify. If you fail the means test–that is, if you earn too much money–you could be barred from filing a Chapter 7 bankruptcy.

Chapter 13

Ironically, the opposite is true if you are filing a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy you have to qualify for a payment plan, which means that you have to show the court that you earn enough money to pay the plan.

How much you have to make to qualify for a plan depends on the amount of your payments, and that depends of the amount, and the kind of debt that you have. The less you have to pay off, the smaller your payments, and thus, the less you will have to show that you earn, to qualify for a repayment plan in Chapter 13.

Many debtors find themselves in trouble when they are in a “middle ground”–that is, they make too much to qualify for a Chapter 7 bankruptcy, but they cannot transfer or convert their case to a Chapter 13, because they make too little to qualify for a Chapter 13 plan.

There may be ways to work around this problem, for example, by arguing your expenses are greater, and thus, making it easier to pass the means test, or by challenging the claim of a creditor, which could give you less to pay off.

Debtors whose income varies )for example, those who are on commission, or who are seasonal workers) may need to time their bankruptcy, so that they file when they are making more or less money.

A good bankruptcy attorney will be able to tell you how your income affects your ability to qualify for either form of bankruptcy before you file.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today for advice about your bankruptcy case.