Consumers generally have two kinds of bankruptcy available to them: Chapter 7 and Chapter 13. Chapter 7, or “straight” bankruptcy, is generally the preferred option because, unlike Chapter 13, it is faster and doesn’t require the consumer to repay any portion of their dischargeable debts.
In order to qualify for Chapter 7, however, you need to pass an income limitation assessment known as the “means” test. If you have income that exceeds your state’s median income over the last six months prior to filing, you won’t qualify for Chapter 7.
But not all income is treated alike under bankruptcy rules. Here’s what counts — and what doesn’t:
- Countable income includes: Wages, child support, alimony payments, rental income, bonuses, gifts from relatives, self-employment and other sources of regular money.
- Non-countable income includes: Social Security Disability (SSD), Supplemental Security Income (SSI) and benefits or compensation paid to disabled veterans, reservists and national guard members. Some portions of a personal injury award, if one was received during the six-month period in question, may also be excluded from the means test.
If your countable income doesn’t fall below the median for your state, you may still qualify for Chapter 7 by showing that your allowable expenses — things such as your mortgage or rent, utility bills, groceries, medical and prescription costs, transportation expense and clothing — are extensive enough to essentially leave you with little or no disposable income to repay your debts. This is particularly helpful when someone has a significant income and big bills to match, or when someone in your family has unusual medical needs.
If you’re hesitating to file for bankruptcy because you’re not sure about your ability to qualify for relief through Chapter 7, don’t guess. Make an appointment with an experienced advocate and learn more about your options.