Do I Make Too Much Income To File Bankruptcy (Or Can I Pass The Means Test)?

by Susanne Robicsek, North Carolina Bankruptcy Attorney

February 2, 2007

Whether or not someone can file for bankruptcy depends on so many individual factors, and so does the type of case that is filed.  The first stage is to determine income to see if there is any money left to pay towards debts after paying for living expenses.  Under the ‘old’ bankruptcy laws, the debtor was supposed to disclose what they made, and what they spent.
The new law requires a complicated and complex review of factors of past income and future income to determine what is income.    If you make above the median income for your area, you are required to take this means test to determine if there appears to be discretionary income leftover which give you the means to repay some, or all, of your debts.
Then they require the use of  average living expenses for your local area against the formula income but for other expenses the test allows true expenses.  Calculation depends on how many are in your household, what taxes you pay, how much you spend on a variety of items, and the list goes on.  If you have discretionary income, you are supposed to file Chapter 13 instead of Chapter 7.
Actually, this was also the rule under the old law. The difference was that the old law looked at actual income and expenses – in other words reality. The new bankruptcy law requires that be shown, as well as additional application of formulas to determine if there is leftover income according to the formula – in other words fiction.

Many people think because their income is greater than median income, they can no longer file for bankruptcy or that they can’t file Chapter 7.

That is not true.

Being above median means that you must take the means test, but it does not mean that you don’t qualify for filing Chapter 7 bankruptcy.  Even if you don’t pass the means test, there are special circumstances which may apply, or you might have to file a Chapter 13 instead of Chapter 7.

The other thing to know is that if you file Chapter 13, that doesn’t mean that you always have to repay your debts in Chapter 13 in full.  Chapter 13 bankruptcy can give a lot of debt relief and provide protection while affordable payments are made.

Don’t jump to conclusions without speaking to an attorney who can apply all the factors to your case.

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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Last modified: February 13, 2013