Instead of being continuously contacted by debt collectors due to unpaid debts, it’s best for you to file a Chapter 7 bankruptcy if you cannot really pay it off. If your application is approved, that means you have a chance to be free from your debt.
But it’s not that easy. There will be a “means test” that you have to undergo. However, Congress has determined the income limit for those who qualify for Chapter 7 bankruptcy.
If you have a plan to file a Chapter 7 bankruptcy, understanding the income limit will be better. Now, it’s time for you to figure out what the income limit is for filing Chapter 7 bankruptcy. Let’s get started!
How Does a Means Test Work?
2005’s Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA) designed a means test to prevent bankruptcy fraud, which has previously involved more than a million Americans, whereas they have enough finances to pay their debts.
Basically, a means test works to find out whether your income is below or above the state median income (SMI). And the ultimate goal of this test is to determine whether you have enough disposable income, after the debt is paid, to be paid to the creditor.
This test is not simple, and your income is a key factor for this test. You cannot only put in your salary to figure out whether or not you pass the means test. Of course, there are a few things to consider here, such as the expenses of your household, the number of dependents, the calculation period, and many more.
If your income is below the state median, you’re eligible to file a Chapter 7 bankruptcy. But it doesn’t mean an individual above the state median cannot do so. They can instead file a Chapter 13 bankruptcy. And of course, they have to undergo the “secondary means test,” which is much more complicated beforehand.
What is the Income Limit for Filing Chapter 7?
When revising the bankruptcy laws in 2005, BAPCPA added income limits for Chapter 7 as well as changed how debtors qualify for filing Chapter 7 bankruptcy. Eligibility for Chapter 7 bankruptcy is based on a means test to find your household income.
When it comes to what the income limit is for Chapter 7 bankruptcy, it is based on the means test, which will later find your household income. After the amount is found, it will determine whether your household income is below the state median or above the state median.
Keep in mind that every state sets its own median income, so the income limit that qualifies for Chapter 7 bankruptcy will vary. Sure, the figure of median income for each state will change several times a year, and it is determined by the U.S. census.
To know what your state median income is, let’s take a look at the table below!
STATE | FAMILY SIZE | |||
| 1 EARNER | 2 PEOPLE | 3 PEOPLE | 4 PEOPLE* | |
| Alabama | $59,605 | $72,419 | $86,685 | $94,373 |
| Alaska | $82,512 | $98,650 | $114,293 | $131,159 |
| Arizona | $66,340 | $83,660 | $94,526 | $107,944 |
| Arkansas | $54,658 | $67,179 | $77,167 | $90,146 |
| California | $74,819 | $96,600 | $109,458 | $128,533 |
| Colorado | $77,331 | $101,720 | $120,195 | $135,820 |
| Connecticut | $81,285 | $101,344 | $124,441 | $149,181 |
| Delaware | $75,674 | $92,239 | $104,443 | $128,053 |
| District of Columbia | $85,933 | $141,690 | $172,958 | $181,083 |
| Florida | $62,973 | $77,639 | $89,908 | $104,069 |
| Georgia | $62,468 | $79,803 | $90,959 | $112,675 |
| Hawaii | $78,745 | $94,677 | $113,594 | $133,656 |
| Idaho | $68,781 | $78,980 | $90,806 | $106,407 |
| Illinois | $66,950 | $86,442 | $105,897 | $125,022 |
| Indiana | $60,351 | $77,580 | $91,431 | $105,581 |
| Iowa | $61,283 | $83,592 | $98,987 | $120,308 |
| Kansas | $64,518 | $82,685 | $100,333 | $111,192 |
| Kentucky | $57,509 | $69,905 | $83,622 | $102,067 |
| Louisiana | $53,821 | $66,051 | $77,910 | $97,149 |
| Maine | $66,369 | $79,644 | $103,965 | $114,591 |
| Maryland | $81,293 | $104,569 | $127,386 | $151,138 |
| Massachusetts | $81,170 | $103,404 | $127,323 | $161,149 |
| Michigan | $64,579 | $77,600 | $95,775 | $114,456 |
| Minnesota | $72,319 | $93,855 | $117,426 | $141,903 |
| Mississippi | $51,554 | $62,496 | $74,909 | $84,767 |
| Missouri | $59,605 | $76,787 | $91,333 | $105,914 |
| Montana | $65,242 | $80,779 | $84,585 | $111,516 |
| Nebraska | $63,813 | $83,412 | $98,600 | $121,455 |
| Nevada | $64,412 | $81,020 | $88,992 | $99,819 |
| New Hampshire | $84,017 | $99,807 | $130,391 | $153,749 |
| New Jersey | $83,102 | $100,763 | $130,239 | $157,404 |
| New Mexico | $56,766 | $71,277 | $77,923 | $83,592 |
| New York | $69,135 | $87,550 | $105,435 | $131,389 |
| North Carolina | $61,811 | $78,415 | $89,965 | $109,590 |
| North Dakota | $66,813 | $89,505 | $104,222 | $122,543 |
| Ohio | $61,617 | $77,816 | $94,913 | $113,435 |
| Oklahoma | $55,362 | $71,043 | $82,213 | $91,528 |
| Oregon | $70,266 | $86,269 | $103,282 | $119,432 |
| Pennsylvania | $66,923 | $81,574 | $103,172 | $125,861 |
| Rhode Island | $72,515 | $93,429 | $119,892 | $138,933 |
| South Carolina | $59,661 | $74,874 | $87,940 | $102,244 |
| South Dakota | $63,862 | $83,730 | $97,624 | $113,008 |
| Tennessee | $59,052 | $75,424 | $88,939 | $99,689 |
| Texas | $61,460 | $79,870 | $89,842 | $108,866 |
| Utah | $78,917 | $87,303 | $106,284 | $120,187 |
| Vermont | $65,712 | $88,215 | $111,980 | $132,356 |
| Virginia | $75,756 | $95,482 | $116,903 | $139,667 |
| Washington | $86,558 | $100,800 | $118,442 | $139,828 |
| West Virginia | $57,979 | $64,478 | $83,128 | $90,164 |
| Wisconsin | $66,106 | $82,346 | $101,490 | $122,571 |
| Wyoming | $61,866 | $77,243 | $93,279 | $113,060 |
Note: *You can add $9,900 for each individual over 4 years.
COMMONWEALTH OR U.S. TERRITORY | FAMILY SIZE | |||
| 1 EARNER | 2 PEOPLE | 3 PEOPLE | 4 PEOPLE * | |
| Guam | $50,975 | $60,950 | $69,455 | $84,049 |
| Northern Mariana Islands | $34,231 | $34,231 | $39,826 | $58,576 |
| Puerto Rico | $27,212 | $27,212 | $32,352 | $43,538 |
| Virgin Islands | $40,445 | $48,609 | $51,827 | $56,782 |
Note: *You can add $9,900 for each individual over 4 years.
After you find your household income below your state median income, that means you pass the means test and qualify for filing Chapter 7 bankruptcy.
How to Know Your Income for Chapter 7 Bankruptcy
It’s pretty simple to find your household income. To know your income for Chapter 7 bankruptcy, you can take one of the following options:
1. Manual Calculation
If you want to try to calculate your income manually, you can follow the example calculation below:
- First, you’ll need to add up your last six months of gross income—this number is before taxes and other expenses are deducted.
- Then, divide the number by six.
- After that, multiply the result by 12. Here, you’ll get your annual household income.
For example, assuming you earn $3,000 per month at your main job.
Aside from the main job, you also work part-time, where you have different incomes per month. Let’s say you earned $400 in July, $550 in August, $350 in September, $450 in October, $600 in November, and $400 in December.
It’s time to calculate it:
- Six months of your main job: $3,000 x 6 = $18,000
- Six months of your part-time wages added together: $2,750
- Your total income (main job + part-time job): $18,000 + $2750 = $20,750
- Divide that number by six. $20,750/6 = $3,458
- Multiply by 12: $3,458 x 12 = $41,496
So, your household income is $41,496.
Now, match your income to your state median income that we’ve shown in the table above.
If you live in Oklahoma and support two family members, congratulations! You qualify for filing Chapter 7 bankruptcy.
However, the Oklahoma median income for two people of family size is $71,043, while your household income is $41,496. Of course, your income is below the income limit for filing Chapter 7 bankruptcy.
2. Using an Online Calculator
If you prefer to use an online calculator, you can browse them on the internet. There are dozens of income limit calculators that you can use.
But keep in mind that the online calculators have limitations in calculating current income due to several factors. Thus, these can help you find out your uncertain income or if you’re unsure about the calculated income based on the number of your family members.
So far, the income limit calculator available on www.ascendbankruptcy.com can be a good option.
What Income Counts in the Chapter 7 Bankruptcy Means Test?
Not only your main job but also your additional jobs must be counted when you’re finding out the income limit for filing Chapter 7 bankruptcy.
Except for income from Social Security retirement income, SSDI, and SSI income, the following sources of income should be included for the Chapter 7 bankruptcy:
- Salaries and wages, including commissions, bonuses and overtime.
- Net income from your self-employment, such as rental property and business operations.
- Workers’ compensation income.
- Unemployment income.
- Interest, dividends, and royalty income.
- Child support and spousal support.
- Pensions, retirement income, and annuities.
- Personal disability insurance income.
- Income earned from contributions to the household by others such as parents, friends, domestic partners, or non-resident partners.
Your Income is Higher Than the Income Limit for Chapter 7 Bankruptcy: Can You Still File?
In some cases, though it’s quite rare, you may still file a Chapter 7 bankruptcy even if your income is higher than the income limits for Chapter 7 bankruptcy.
As long as your disposable income is below a certain level, you can still have a chance for bankruptcy discharge. This means that there are several expenses that can be deducted from current monthly income (CMI) to calculate disposable income, including:
- Household expenses such as food, housing, clothing, childcare, and school fees.
- Mandatory deductions such as payroll taxes, mandatory retirement savings, uniforms, and union dues.
- Payments for car, rent, mortgage, and lease payments.
- Out-of-pocket health care costs.
- Payments for health insurance, disability insurance premiums, and term life insurance.
- Public transportation costs and personal vehicle operating costs.
- Child support or court-ordered alimony.
Of course, the expenses are based on how many family members you support. Additionally, some monthly expenses are based on national standards for the cost of living, and there are expenses that are capped, including golf clubs, expensive gym memberships, etc.
If you have to pay significant out-of-pocket expenses for your health care or that of a family member, you will need to provide valid proof of those expenses.
