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REASONS TO FILE CHAPTER 13: MAKING TOO MUCH INCOME

Couple stressed out and holding up a help signAnother reason to file Chapter 13 is due to making too much income.  Frequently our clients are forced to file Chapter 13 (over Chapter 7) due to making too much income.  The United States Bankruptcy laws require any one who makes past a certain set amount of income per year to file under Chapter 13.  Essentially, the test is whether you have any income left over at the end of the month that could repay some of your creditors.

WHAT DETERMINES WHETHER I AM “FORCED” TO FILE CHAPTER 13 DUE TO MY INCOME LEVEL

A two-part test determines whether you must file Chapter 13 due to your income.  First, you must check whether you are under the “median income line” for your household size.   For instance, if you have a household of 1, the  “line” you must be under may be approximately $44,000 per year (although this depends on the county and state where you live).

All additional members of the household increase this number.  For instance, a household of two may increase the “line” you must be under to approximately $55,000 (and so on for additional dependents).   If you are under this “median income line” amount, you automatically qualify to file under Chapter 7 under bankruptcy law and do not need to proceed to the second test.

The second test is called the “means test.”  Essentially, the government has made a list of acceptable expenses that can be deducted from your total income.  This test determines whether your additional, excess income could repay some of your creditors.  If you have “left over” (disposable) funds available per month after this test is calculated, you must pay those funds per month through a Chapter 13 case.  Chapter 7 will no longer likely be available to you if these excess monthly funds exist after the means test.

CHAPTER 13 CAN STILL BE A POWERFUL OPTION EVEN IF YOUR INCOME  FORCES YOU TO FILE

If you are forced to file Chapter 13 due to income, you can still greatly benefit.   Your payments for items such as credit cards or automobile loans can many times be reduced.  In addition, Chapter 13 offers a solid, 3-5 year solution for your debts.  Outside of Chapter 13, most debtors are only capable of making minimum payments.  This could result on you paying higher monthly payments over 5 years only to retain almost the entirety of your debt!

Do not be discouraged if you are “forced” to file Chapter 13: powerful debt relief can still be achieved outside of Chapter 7.   If you are concerned about your debt situation, a free consultation can test whether you are eligible for Chapter 7.    If you are not eligible, a free consultation can result in the calculation of an estimated Chapter 13 payment to see if it can work for you.