What Is The Income Limit For Filing Chapter 7 Bankruptcy in 2024?

1. 1. Chapter 7 Income Limits Calculator – Unfortunately, the income limits below change, and this calculator has all the up to date income limits. The calculator also helps if you have variable income or if you are unsure of your household size or what income is calculated.
   2.  Chapter 7 Income Limits By State—We include the data if you want to take a quick look and try to update this often. Again, the calculator will be the most up-to-date.
   3.  Explanation of how the Chapter 7 Income Limits Work.
   4. Someone on my team’s bankruptcy experience from start to finish

Bankruptcy Means Testing Median Income Limit Numbers

Understanding the Income Limit for Chapter 7 Bankruptcy Cases

Congress added an income limit for Chapter 7 when it revised bankruptcy laws in 2005. BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) changed how debtors qualified for bankruptcy discharge in Chapter 7.

The purpose of this change was to prevent bankruptcy abuse by limiting Chapter 7 cases to individuals who could not afford to repay any portion of their unsecured debts.

Why Income Limits Are Important in Chapter 7 Cases

The Chapter 7 income qualifications under means testing can prevent you from receiving a bankruptcy discharge. The bankruptcy discharge is why you file a bankruptcy case. A discharge releases you from the legal responsibility to repay a day. Without a discharge, you owe your debts as if you never filed for bankruptcy relief.

That said, the income limit for Chapter 7 does not prevent you from filing a Chapter 7 bankruptcy case. You can file for Chapter 7 regardless of how much money you earn.

However, if your income exceeds the Chapter 7 income limits, you may not be eligible to receive a bankruptcy discharge. In other words, your bankruptcy filing does not result in debt relief. The court can deny your bankruptcy discharge based on abuse. That said, it’s a bit more complicated than that, as there are 2 parts to the means test, so some people may still qualify even if their income is above Chapter 7.

When your income exceeds the maximum income for Chapter 7 bankruptcy cases, you may need to file under Chapter 13 to receive a bankruptcy discharge. The assumption is that if your income is higher than the maximum income for Chapter 7, you can afford to pay a percentage of what you owe to your unsecured creditors.

How to Calculate Income for the Chapter 7 Means Test

The first step is to gather proof of income for the past six months. Income for the Chapter 7 means test is based on income for the six months before you file your Chapter 7 cases. Therefore, if you file your Chapter 7 bankruptcy petition on July 15, you need to report all income from January 1 through June 30.

You can find the exact language to calculate income in this form of the bankruptcy means testing forms.

Which Income is Included in the Chapter 7 Bankruptcy Means test?

Income includes income earned, and income received from all other sources, except income from the Social Security Act and VA Disability Income. Income received from Social Security retirement income, SSDI, and SSI is not included in income for the Chapter 7 Means Test.

Examples of income used for the Chapter 7 Means Test include:

1. 1. • Wages and salaries, including overtime, bonuses, and commissions
      • Net income from self-employment or operation of a business
      • Net income from rental property
      • Unemployment income
      • Workers’ compensation income
      • Interest, royalties, and dividends
      • Annuities, retirement income, and pensions
      • Private disability insurance income
      • Child support and spousal support
      • Regular income contributed by another person for household expenses, such as a non-filing spouse’s income and money from a roommate, domestic partner, parent, or friend.

Completing the Means Test

Section One – Median Income

There are two terms you need to understand when completing the first part of the Chapter 7 Means Test — current monthly income (CMI) and annual median income. The annual median income is based on your CMI. To calculate CMI, all income received during the six months before filing Chapter 7 is divided by six. Therefore, if your income for six months is $25,000, your current monthly income equals $4,166.67 ($25,000 divided by 6).

The annual median income is calculated by multiplying CMI by 12. In the example above, median income is $50,000.04 ($4,166.67 x 12). Your annual median income is compared to the annual median income for your state (see our chart below). If your median income is lower than the median income for your state, you are presumptively eligible for a bankruptcy discharge under Chapter 7. In other words, you can receive debt forgiveness in Chapter 7 if you meet the other government requirements for filing Chapter 7.

Section Two – Statement of Exemption from Presumption of Abuse

There are certain provisions that may exempt you from the means test altogether. These are related to whether the debts are consumer-related and whether you are a disabled veteran or whether you are or have been a member of the National Guard or a Reservist. See the bankruptcy form, “Statement of Exemption from Presumption of Abuse Under §707(b)(2)” for more information.

Section Three – Disposable Income

If you earn too much income to qualify for Chapter 7 under the median income test, you could see how to pass the Chapter 7 means test under the disposable income test. Disposable income is the amount of money you have each month after deducting your ordinary living expenses and mandatory payroll deductions. In Chapter 13 cases, you may have to include disposable income in your Chapter 13 plan.

See the above median calculator below to see whether you may still qualify for a Chapter 7 bankruptcy even if your income exceeds the median income based on your household size and state.