If you need to file for bankruptcy, you must determine whether you qualify. Several factors will decide whether or not you are eligible to file.
These factors include the debt amount, income limit, and the Means Test. If you meet these requirements, you will qualify to file.
3 Ways To Qualify For a Bankruptcy
#1. Means test
If you have been considering bankruptcy, you must determine if you can afford to pay your debts. This process is called means testing and is required by the bankruptcy court.
The test will determine if your income is sufficient to pay your debts and if you can pay your current expenses. The means test will also consider your expenses, such as rent, groceries, clothing, and medical bills.
Most people fail the means test, but it is possible to file for bankruptcy in Everett, WA, even if you don’t meet the income requirements.
A bankruptcy attorney can help you decide if filing for bankruptcy is the right option.
You’ll be required to input your income and expenses from the last six months.
If you fail the test, the trustee may file a motion to dismiss your case or convert your bankruptcy case to a Chapter 13 case.
The test uses federal forms to determine whether a debtor can qualify for bankruptcy.
Official forms 122A-1 and 122A-2 require you to list your income, debts, and expenses. Congress created the means test to prevent bankruptcy abuses and ensure that the bankruptcy process protects society.
#2. Income limit
For those considering filing bankruptcy, the income limit is an important consideration. However, it’s important to note that this is a relatively easy and fast rule you must abide by, as the rules change from time to time.
In addition, chapter 7 bankruptcy income limits vary, so it’s essential to check with your bankruptcy attorney. The income limit for Chapter 7 bankruptcy depends on your household size.
If you make less than $7,700 monthly, you may qualify for Chapter 7 bankruptcy. If your income is between $7,700 and $12,850, you must figure out the amount of non-priority unsecured debt you have.
According to the U.S. Census Bureau, the median income for households in each state is different. Therefore, the median income is determined by averaging the payment of all homes in each state.
#3. Debt amount
To determine whether you qualify for bankruptcy, you must know how much debt you owe. The more debt you owe, the lower your chances of qualifying.
In most cases, the debt you owe is about 40% of your income. However, there are certain cases where a smaller debt amount may be enough to qualify you for bankruptcy.
If you make less than the state’s median income, you probably won’t qualify for Chapter 7 bankruptcy.
If you make more than this, you’ll trigger a means test calculation, which compares your monthly income with your monthly expenses. If your monthly income exceeds 25% of your unsecured debt, you may not qualify.
A bankruptcy attorney can help you determine which chapter of bankruptcy is right for you. For example, you may be eligible for Chapter 13 bankruptcy if you struggle to pay your bills.
This option will allow you to restructure your debt and work out a repayment plan with your creditors. The creditors will receive a portion of your payments, and the remainder of the debt will be discharged.
While you will have to pay back a large amount of your debt, you’ll keep your assets and avoid the adverse effects of bankruptcy on your credit report.
#4. Requirements to file
Before filing for bankruptcy, you should gather all documents about your finances. Generally, you must provide schedules of your assets and liabilities and your income and expenses.
The bankruptcy court will need this information to decide whether you can afford your debts. You will also need to provide details of open contracts and unexpired leases.
If you’re filing for bankruptcy in your state, you’ll need to meet specific requirements. For example, you must pay income tax on all the money you receive due to your bankruptcy.
If you fail to pay income tax on the money you receive after bankruptcy, you’ll likely face a fine of up to five hundred dollars.
In most cases, a person can file for bankruptcy through Chapter 7 if they earn less than the median income in their state.
To qualify, those who earn above the median income must pass the second part of the means test. A means test compares a person’s current income to the median income in their state.
This test does not consider payments from Social Security retirement benefits or income tax refunds.
