Do I Make Too Much Money For Bankruptcy

Are you wondering whether or not you can file for bankruptcy based on your income? This is everything you need to know about qualifying for bankruptcy.

petition to file for bankruptcy Bankruptcy is a heavy topic that creates feelings of stress just by hearing the word. Knowledge is power and having the right information to help guide your decision is key in reducing that stress.

You want to know if it's possible to have too much income to file for bankruptcy? The short answer to this question is: yes. Yes, you can.

The long answer is: It could take more income to disqualify you than you think.

As with any legal endeavor, there are lots of ins and outs to the process of qualifying for bankruptcy. One of the first things to do is to figure out what you're hoping to get out of this process. Are you looking for complete elimination of debt or is it time to get your debts under control?

Either way, you have options!

The Median Income Test

Part 1 is called the Median Income Test. It calculates your annual gross income by averaging your last six months' income (add them together and divide by 6) and then multiplying that by 12.

Part 1 is very black or white. Your calculated annual household income is then compared to the allowed income limits for your state. You pass or fail Part 1 based on these limits. But don't forget that there's a Part 2!

The Means Test

Part 2 is the Means Test. This is where the process gets more specific and allows you to deduct certain payments. You start by deducting ongoing secured debt payments from your annual household income to see what you have left. You can deduct payments for things such as:

Mortgage
Car loans
Required payments such as child support, alimony, student loans, or tax debts that wouldn't be eliminated when filing
Paycheck deductions including insurance, HSAs, and retirement fund
Necessary expenses like childcare, charitable contributions (up to 15%), or certain medical expenses.

In addition to these potential deductions, your regular living expenses will be based on national and local standards that have already been set for your family size.

What Your Results Mean

After your deductions have been calculated and entered, you'll get one of two results: You'll either have a negative number, which means that your payments are more than your income and you qualify to apply for Chapter 7 bankruptcy. Or you'll have a positive number, which means you have what is known as disposable monthly income.

If you feel you don't have enough disposable monthly income, there is another calculation you can try to see if you will qualify for Chapter 7 bankruptcy, though you will likely need some professional help at this point. You can take your disposable monthly income number and multiply it by 60. If this number is less than a certain amount, it will show that you are still experiencing enough financial hardship to qualify for Chapter 7.

Exemptions to Consider

If you are still struggling to qualify there are a few exceptions that may help you. These are more specific items that won't apply to everyone but may be your saving grace when filing for bankruptcy.

Non-Consumer Debt

You could also label this category as "Business Debt".

If more than 50% of your debt is debt that you incurred for a business or with the purpose of making a profit, you automatically apply to file for bankruptcy. Do not pass GO! Do not collect $200! Skip the Means Test and find a bankruptcy professional to help get the process started.

Qualifying Service Members and Veterans

Service members who fall into this category are not required to use the Means Test. This includes the following:

Disabled vets who incurred their debt while in the service
Reservists or National Guard members who were called to active duty and file within 18 months of being released from active duty.

All military personnel considering filing for bankruptcy should carefully weigh the impact it may have on their enlistment or security clearances. It is not guaranteed to affect you, but it is always best to be sure.

Filing With Chapter 13 is Still an Option

What is the difference between Chapter 7 and Chapter 13 bankruptcy? Think of the difference between the two as liquidation versus restructuring.

With a Chapter 7 bankruptcy, your goal is to get rid of as much of your debt as you can. This will involve a process of looking at your assets, determining what is necessary and exempt from liquidation, and having all other assets liquidated to pay off as much debt as possible before the rest is absolved.

With a Chapter 13 bankruptcy, you will be able to keep all your assets and be asked to create a potential payment plan. Your disposable monthly income will be considered and your payment plan finalized accordingly. The bankruptcy court will then take control of paying your debts included in the bankruptcy and taking that monthly payment and distributing it to your collectors.

What to Consider When You File for Bankruptcy

When you file a Chapter 7 bankruptcy it will affect your credit for 7-10 years. You also have restrictions on how many times and when you can file. There are protections in place to help ensure bankruptcies are not abused. This type of bankruptcy will affect your credit and you will lose any assets that are not exempted.

The idea behind restructuring with a Chapter 13 bankruptcy is to help you get back on your feet. It is not intended to get rid of your debt. Also, keep in mind that neither 7 nor Chapter 13 will let you liquidate student loan debt or child support and alimony debt.

Help is Available

Don't let that stressful feeling settle back in! Information overload is a real thing, there are a lot of options and pieces to consider when looking at your income and whether you make too much to file. Following these steps will help you determine whether you should file for bankruptcy.

Once you have decided to move forward, call Husker Law in Omaha, Nebraska at (402) 415-2525 for a free consultation. We are ready to help!