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Why Making Too Much Money May Not Keep You From Chapter 7 Bankruptcy

chapter 7 bankruptcy above median incomeShe was over her head in debt, drowning in collection calls and the threat of lawsuits.

The problem, she’d been told by another lawyer, was that she made too much money to qualify for Chapter 7 bankruptcy.  He hadn’t done any calculations to make that determination, dismissing her after hearing her gross income.

That wasn’t the problem.

The real issue was that there was some lawyer who claimed to know something about Chapter 7 bankruptcy and yet giving out inaccurate information.

Your Income Is Only Half The Chapter 7 Battle

When you’re unable to pay your debts and start looking into Chapter 7, you’re going to need to look at your annualized income averaged out over the past six months unless your debts aren’t considered “primarily consumer debts.”

If your income is above the median income for a household of your size in the state in which you live, the calculation ends there and you’re considered to have “passed” the means test.  If your income is above median, however, you need to go through a second round of calculations.

That second round of calculations answers the question of whether your income should be enough to support basic and accepted expenses along with some amount of debt repayment.

If the’re nothing left over after those expenses then you’re clear to file for Chapter 7; if not, Chapter 7 bankruptcy isn’t an option for you.

Your Expenses Are The Other Half

When you’ve got above median income figure to work with, you need a bankruptcy lawyer who’s smart enough to ferret out every possible expense and use it to your benefit. That’s because the above median income bankruptcy filer can use a number of expenses to reduce the final means test number and therefore come closer to the Chapter 7 qualification level.

Some of the expenses that an above median income person can use are:

  • actual education expenses in connection with keeping your job;
  • the amount you actually spend for childcare;
  • the amount you actually spend on healthcare for yourself and your dependents; and
  • expenses related to telecommunications services necessary for your health and welfare.

There are more expenses that an above median income Chapter 7 bankruptcy filer can use, and these examples merely scratch the surface.  Suffice to say that being above median income is in no way necessarily a bar to getting into the Chapter 7 door.

Means testing is very much an art, though it is wrapped in the science of calculations. Maybe you need to wait a month or two until your income drops a bit.  Perhaps you’ve got expenses that bring the numbers down.  Regardless, this is a time when you need a lawyer like me who knows how to ethically and honestly make the system work to your benefit.

Image credit: nebarnix

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By |March 5th, 2012|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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