Do You Make Too Much to File Chapter 7 Bankruptcy? Income May Not Be a Barrier

Do You Make Too Much to File Chapter 7 Bankruptcy? Income May Not Be a Barrier

Submitted by Rachel R on Thu, 01/28/2016 - 9:26am

Do You Make Too Much to File Chapter 7 Bankruptcy? Income May Not Be a Barrier

Make too much for Chapter 7 bankruptcy? Maybe not...

Image Source: Flickr User Pictures of Money

Some consumers are under the impression that there is an income limit to be able to file for Chapter 7 bankruptcy to get help with unmanageable debt. The phrase “median income” is often misunderstood as is the requirement for the “Means Test.” Just because you earn a decent living – or even a high income – doesn’t mean you are ineligible for Chapter 7 – the most sweeping form of debt relief.

Why median income matters

Median income is the threshold set to determine whether or not you must take the Means Test to determine eligibility for Chapter 7 bankruptcy. Those that are at or below the median income are not subject to the Means Test and should qualify. But even those consumers whose earnings exceed the median income may still qualify for Chapter 7.

What is the Means Test?

If your household rakes in more than the median income, the Means Test determines whether your debt is unmanageable based on your earnings. Household expenses are taken into account, as is the size of your family, and other factors. If you are unable to pay your debts, despite earning an above-median income, you should still qualify for Chapter 7 bankruptcy protection.

If you pass the Means Test, is Chapter 7 best?

Consumers who are in over their head with debt usually will pass the Means Test, but Chapter 7 is not the right solution for every household. For instance, if you have more equity in your home than can be protected by North Carolina bankruptcy exemptions, you may want to consider other alternatives. If you are delinquent on your mortgage or auto loan and have equity in the assets, Chapter 7 may not be the best option.

What if you don’t pass the Means Test?

If you don’t pass the Means Test, have too much equity in your home, or delinquency on a home you want to save, Chapter 13 may be preferable for your circumstances. Chapter 13 allows you time to catch up on past-due balances on an installment payment plan while you resume making your current home or auto payments. Chapter 13 usually also results in a portion of your unsecured debts being discharged.

Don’t assume which option is better for you

You may have in mind that Chapter 7 is preferable to a Chapter 13 bankruptcy or vice versa. However, you shouldn’t decide this without all the information on the advantages and limitations of each chapter. For instance, Chapter 7 provides immediate relief and more sweeping debt discharge. Plus, you can start rebuilding your credit right away with more money in your pocket thanks to fewer bills.

In contrast, Chapter 13 can be better for those with greater assets or higher equity in their assets. But there is more to the decision than just these considerations. Meeting with a reputable North Carolina bankruptcy attorney to discuss your debt, assets, income and financial circumstance and goals is the best way to discover which option is best for you.

To schedule a free North Carolina bankruptcy consultation, contact the Law Offices of John T. Orcutt by calling +1-919-646-2654 to speak to one of our NC bankruptcy experts at our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

Debts Hurt! Got debt? Need help? Get started below!

Serving All of North Carolina

  • Charlotte
  • Fayetteville
  • Durham
  • Wilson
  • Greensboro
  • South Raleigh (Garner)
  • Southport
  • Wilmington

North Raleigh

6616 Six Forks Rd Suite 203 Raleigh, NC 27615 North Carolina

Tel: (919) 847-9750

North Raleigh

Charlotte

7400 Carmel Executive Park Dr Suite 105 (In association with) Charlotte, NC 28226 North Carolina

Tel: (704) 318-2702

Charlotte

Fayetteville

2711 Breezewood Ave. Fayetteville, NC 28303 North Carolina

Tel: (910) 323-2972

Fayetteville

Durham

1738 Hillandale Road Suite D Durham, NC 27705 North Carolina

Tel: (919) 286-1695

Durham

Wilson

2215 Nash St. NW Wilson, NC 27896 North Carolina

Tel: (252) 234-9194

Wilson

Greensboro

600 Green Valley Road Suite 210 Greensboro, NC 27408 North Carolina

Tel: (336) 542-5993

Greensboro

South Raleigh (Garner)

143 Highway 70 Garner, NC 27529 North Carolina

Tel: (919) 747-4400

South Raleigh (Garner)

Southport

4320 Southport Supply Road SE Suite 300 Southport, NC 28461 North Carolina

Tel: (910) 218-8682

Southport

Wilmington

4320 Southport Supply Road SE Suite 300 Southport, NC 28461 North Carolina

Tel: (910) 447-2987

Wilmington