Chapter 7 and Income

• Not everyone who desires to file for Chapter 7 is eligible to do so. You must meet several requirements to be able to file, including receiving credit counseling. Only individuals with a low enough income (that meets state requirements) are eligible to file for Chapter 7. These requirements are in place to ensure that the only people who receive Chapter 7 bankruptcy protection are those who truly need it. If your income is not low enough but you have many debt problems and they are becoming too overwhelming, you might still be able to file for Chapter 13. Chapter 13 does not eliminate your debts, but it helps you to pay them at lower interest rates.
  
  

Income and the Means Test

• The means test determines whether your income makes you eligible to file Chapter 7 or not. It compares your current income to the average income in your state by comparing your family's income to a family of the same size that lives in your state. The bankruptcy court looks at the average income per state, as each state is different, and living costs differ. If your income is higher than the average income in your state, you probably do not qualify to file for Chapter 7. Current income is your income for the six months before you file. It includes all sources of income you have, whether they are job-related or not. It excludes payments you receive from Social Security benefits.
  
  

Income and Living Expenses

• If your income was higher than the average income in your state, you probably do not qualify to file for Chapter 7. However, you can still go through the second part of the means test to determine whether you are eligible to file. The second part of the means test looks at your disposable income. Disposable income is the income you have left after all the allowable expenses have been taken out. Allowable expenses are the monthly expenses dedicated to supporting your family and paying necessary bills and expenses. If your disposable income is high enough to pay your monthly debts, you do not qualify for a Chapter 7 filing. However, you might still qualify to file for Chapter 13.
  
  

Income and Assets

• If you do qualify to file for Chapter 7 and the court approves your case, you will have to deal with some consequences of this filing. The Bankruptcy Code says that the court must sell your assets and property to pay your creditors back. In some states, this might include taking your income for that month and other resources you have. Under state law, some assets are protected from being sold. Check with your state to find the exemptions that are available to you.