Chapter 7 bankruptcy is an extremely powerful tool that can help you get out from underneath overwhelming debt and get a fresh start. However, most people don’t realize that you have to be income-qualified in order to be eligible to file for Chapter 7.
If your average monthly income is higher than the median income, the good news is that you aren’t necessarily disqualified from filing Chapter 7. Unfortunately, you will have to provide greater detail regarding your income and expenses in order to pass the means test.
We want to emphasize that the means test varies by state. As a result, it’s critical that you discuss your case with a Minnesota bankruptcy lawyer if you are considering filing for Chapter 7 bankruptcy.
The means test requires that you calculate your average monthly income for the six months prior to the date you file for bankruptcy. You must include all sources of income, whether they are taxed or not, with very few exceptions. Here are some examples of income that should be included when calculating your average monthly income:
When calculating your monthly income, add up the total of all of your sources of income for the last six months, and then divide by six. For purposes of this calculation, you should use your pre-tax income.
At this point, one of the most important elements of the means test is household size, so you’ll want to make sure you are comparing your current income against the median income of a family of the same size. If your average monthly income is less than the median income for the same-size family in the state of Minnesota, then you have passed the means test and can file for Chapter 7 bankruptcy. If your monthly income is too high, then you should review your expenses with the help of a Minnesota bankruptcy law firm.
If your income is higher than the median income, you can then use certain expenses as deductions in order to reduce your income and hopefully pass the means test. Here are some of the most important expenses that can help you qualify for Chapter 7 bankruptcy:
You have probably noticed that this analysis sounds very similar to claiming deductions on your tax returns. For bankruptcy purposes, you’re instead using these expenses to determine whether your average monthly income is less than the median income for a family the same size as yours. And just like filing your taxes, sometimes you need to hire a professional - a Minnesota bankruptcy attorney has the knowledge and experience to help you accurately determine whether or not you qualify for Chapter 7 Bankruptcy.