Income and Other Requirements for Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows a debtor to wipe out most of his unsecured debts, including credit card debt, medical bills, certain tax debts, and personal loans.  However, not everyone is eligible to file a Chapter 7 bankruptcy.

Chapter 7 Income Requirements

Unless a Chapter 7 debtor meets certain income requirements, his case will be converted to a Chapter 13 case or it will be dismissed.  The median income and means tests are used to determine whether a debtor is eligible to file a Chapter 7 bankruptcy case. 

The Median Income Test

The median income test determines if the petitioner must take the means test and requires a debtor to demonstrate that his income is less than or equal to the median income of a household or family of the same size in his state. If a debtor satisfies the median income test, he is eligible to file a Chapter 7 case.  If he does not satisfy the median income test, he must meet the requirements of the means test in order to file a Chapter 7 case.

When calculating household income, the income of non-family members living in the household must be included.  Median family income is determined by Census Bureau figures for the most recent year for which data is available.

The Means Test

The means test is used to determine whether the filing of a Chapter 7 case amounts to a substantial abuse by a debtor of the bankruptcy process.  The means test requires the deduction of certain allowable expenses from the debtor's current monthly income to arrive at the monthly amount which is presumably available for payment to general unsecured creditors.

There is a presumption of abuse if a debtor has net monthly income of at least $166.67  or $10,000 projected over a five year period available for payment to general unsecured creditors. Abuse is never presumed, on the other hand, if a debtor has less than $100.00 net monthly income or $6000 projected over a five year period for payment to unsecured creditors.

So, what about the people who fall between these two extremes?  In such instances, abuse is only presumed if the debtor's net monthly income is sufficient to pay at least 25%  to general unsecured claims over a five year period.

Exceptions

Non-consumer debts are not subject to either the median income or means tests.  Moreover, disabled veterans are not required to pass the means test as long as the debts in question where incurred primarily during a period of active military duty or while the debtor was performing homeland defense activities.

Other Requirements

In addition to the bankruptcy petition and schedules, a debtor must file all pay stubs or other payment advices evidencing income received during the 60 day period preceding the filing of the bankruptcy.  Additionally, the debtor must provide the bankruptcy trustee with a copy of his most recent tax return at least seven days before the meeting of creditors.

Prior to filing bankruptcy, all debtors must complete a pre-bankruptcy education class.  The certificate of completion must be filed with the court no more than fifteen days after the bankruptcy petition is filed.

Getting Legal Help

The decision to file bankruptcy is one of the most important and emotionally trying decisions a person can make.  Once the decision is made, its imperative that the paperwork is correct and that all of the bankruptcy rules are followed.  That's why hiring a qualified bankruptcy attorney is so important.  A bankruptcy attorney will ensure that the bankruptcy petition and schedules are completed properly and that all deadlines are met and rules are adhered to.