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How to File a Chapter 7 “Straight Bankruptcy” Even If You Make More than the “Median Family Income”

The amount of your income alone may not disqualify you from Chapter 7.

The last blog said that:

• You can avoid the “means test” altogether if more than half of your debts are business debts—they were NOT incurred “primarily for a personal, family, or household purpose.”

• When comparing your “income” for the “means test” against the applicable “median family income,” your “income” is based on virtually all the money you receive during the previous six-full-calendar-month period. Which six months make up that period depends when you file, meaning that you may have some control over your “income” and whether or not is it above the “median family income” amount.

• But even if your “income” is indeed higher than your applicable “median family income,” that’s just the beginning of the “means test.”

So here are the remaining steps of the “means test,” each step giving you another opportunity to pass it and qualify for Chapter 7. Be forewarned: these additional steps are not the easiest to understand:

• You can deduct certain living expenses from your monthly “income” to see if your “monthly disposable income” is low enough. Unfortunately, the rules for determining what expenses you may deduct and how much for each are almost unbelievably complicated. It would take pages and pages to explain. For just a taste of this, the allowed amounts for some types of expenses are based on what you actually spend, some are based on tables of local standards amounts, others on national standards. For our present purposes, what counts is that after applying those rules, if the amount left over—the “monthly disposable income”—is no more than $117, then you can still file Chapter 7.

 • If your “monthly disposable income” after deducting expenses is between $117 and $195, then the following formula is applied. Multiply your “monthly disposable income” by 60. Then compare that amount to the total amount of your regular (non-priority) unsecured debts. If the multiplied amount is not enough to pay at least 25% of those debts, then you can file Chapter 7.

 • If after applying the above formula you CAN pay at least 25% of those debts, OR if after deducting your allowed living expenses the resulting “monthly disposable income” is more than $195, then you can still file under Chapter 7 by showing “special circumstances.” Examples of appropriate “special circumstances” in the Bankruptcy Code are “a serious medical condition or a call or order to active duty in the Armed Forces.”

The previous blog showed that even the relatively simple first step of the “means test”—comparing your “income” to the “median family income”—has its unexpected twists and turns. Today we’ve seen that if your “income” is indeed too high for that first step, there are other steps to the “means test” which—although admittedly complex—may get you successfully through Chapter 7.

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