Before 2005, this was not a question that we heard quite as often as we do today in a bankruptcy law firm. When bankruptcy laws were reformed in 2005, the issue of income became a question for many debtors who read about income limits for filing bankruptcy. This misconception hurt many debtors who waited far too long to seek the advice of a bankruptcy attorney. Income does play a factor in a bankruptcy case; however, your level of income does not prevent you from filing bankruptcy.
How Does My Income Affect My Bankruptcy Case?
The short answer to whether income matters when you file bankruptcy is, “Yes, it does matter.” Your level of income will impact the chapter of bankruptcy you can file. For example, a debtor wishing to file under Chapter 7 must first pass a means test in order to qualify to file under this chapter. Your income will be used to determine if you qualify to file under Chapter 7. In a Chapter 13 case, your income does not impact whether you can file a Chapter 13 case but it will impact the amount of your bankruptcy plan payment.
What is the Bankruptcy Means Test?
As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Congress changed bankruptcy laws so that individuals who want to file under Chapter 7 must first pass an income test or the means test. The means test compares the individual’s income to the median income level of individuals in the same geographical area with the same family size. If the individual’s income is below the median income level set forth in the means test, the person qualifies to file under Chapter 7.
The means test is not just a pass or fail test. The means test is comprised of more than one part. It is possible for a person to fail the first part of the means test but pass the second part to file a Chapter 7. A qualified bankruptcy attorney can help you determine if you qualify to file under Chapter 7.
What if I Fail the Means Test?
If your income is above the median income level for a Chapter 7 bankruptcy, you may still file a Chapter 13 bankruptcy case. In a Chapter 13 bankruptcy, you will receive relief from your debt but you will be required to pay a portion of your debt back to unsecured creditors based on factors such as your income, expenses, and debts. In order to obtain the lowest plan payment allowable under bankruptcy laws, you should always seek the advice of an experienced bankruptcy lawyer.
Contact an Experienced Mount Holly Bankruptcy Attorney
Personal Approach, Professional Service, Affordable Payment Plans
The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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