Qualifying for Chapter 7

Qualifying Based on Income.

The simplest way for individuals with primarily consumer debts to qualify for Chapter 7, is by demonstrating that they have income below the median income for their household size. Married couples typically qualify as a 2 person household with each child adding an additional person and increased limits.

As of March 15, 2011, the Arizona Census Median Income levels are:
 
1 Person Household: $42,603/year; $21,302/six months; $3,550/month
2 Person Household: $55,404/year; $27,702/six months; $4,453/month
3 Person Household: $59,659/year; $29,830/six months; $4,972/month
4 Person Household: $67,113/year; $33,557/six months; $5,593/month
5 Person Household: $74,613/year; $37,307/six months; $6,218/month
6 Person Household: $82,113/year; $41,057/six months; $6,843/month
7 Person Household: $89,613/year; $44,807/six months; $7,468/month
8 Person Household: $97,113/year; $48,557/six months; $8,093/month
Additional Members: $7,500/year; $3,750/six months; $625/month

 

As of March 15, 2011, the California Census Median Income levels are:

1 Person Household: $48,009/year; $24,005/six months; $4,001/month
2 Person Household: $62,970/year; $31,485/six months; $5,248/month
3 Person Household: $68,670/year; $34,335/six months; $5,723/month
4 Person Household: $78,869/year; $39,435/six months; $6,572/month
5 Person Household: $86,369/year; $43,185/six months; $7,197/month
6 Person Household: $93,869/year; $46,935/six months; $7,822/month
7 Person Household: $101,369/year; $50,685/six months; $8,447/month
8 Person Household: $108,869/year; $54,435/six months; $9,072/month
Additional Members: $7,500/year; $3,750/six months; $625/month

 

The Bankruptcy Code requires that this income be measured over the 6 months prior to when a bankruptcy case is filed. For instance, if you were filing a bankruptcy in July, you would be required to demonstrate income satisfying the qualification requirements from the prior January through June.

Qualifying Under the Means Test. If an individual makes more than the median income they may still qualify for Chapter 7 if their monthly expenses leave them with little to no disposable income. The means test requires a complex analysis that should be trusted only to a competent bankruptcy lawyer. In general, the means test favors high involuntary expenses such as medical expenses and taxes, although most everyday expenses such as car payments and home mortgages are also factored into the equation.

Read more about the means test here.

Qualifying Based on Primarily Non-Consumer Debts. The median income and means test qualifications generally only apply to debtors whose debts are primarily consumer debts. Debtors with primarily business debts may be exempted from these requirements. Many individuals are forced into bankruptcy because of failed or struggling business ventures.  In many cases, these debtors will qualify without the need for complex means testing.

Qualifying for Chapter 13

There are no income restrictions on filing a Chapter 13. Anyone with regular income may file under Chapter 13 so long as they do not have more than $360,475.00 in unsecured debt or $1,081,400.00 in secured debt. Unsecured debt consists of debts such as credit cards, personal loans, student loans, tax liabilities and also includes the undersecured portion of secured debts.