Do you understand the means test for Chapter 7 bankruptcy?

Dec 23, 2019 | Bankruptcy

Anyone can get in over their heads financially, but not everyone can qualify for Chapter 7 bankruptcy to regain control of their finances. Chapter 7 bankruptcy, also known as liquidation bankruptcy, is the most aggressive kind of bankruptcy available to individuals struggling with personal debt. Unlike Chapter 13 bankruptcy, which requires a repayment plan that lasts for multiple years, Chapter 7 proceedings result in immediate discharge, provided that the courts approve your filing.

Given the speedy discharge and lack of repayment obligations, it might be possible for individuals to abuse the bankruptcy system by accruing substantial debt that they could theoretically repay and then filing for Chapter 7 bankruptcy to avoid paying off their credit cards and other financial obligations.

To prevent abuses of the system that might deter companies from offering credit and financial services, federal regulations governing bankruptcy specifically limit Chapter 7 proceedings to individuals who can pass a means test, which involves adjusting their income and comparing it with the state median.

What are the income limits for Chapter 7 bankruptcy in Washington?

Every state has different average incomes and cost of living expenses for its citizens. As a result, the median income and qualifications for Chapter 7 bankruptcy vary substantially from state to state.

In Washington, a single person with no dependents filing for bankruptcy after Nov. 1, 2019, needs to have an adjusted income of $66,309 or less. For families of two, that amount increases to $78,823. Families with three members can have an adjusted income of up to $90,921, while families with four people may have an income of up to $105,568.

It’s important to note that these amounts are your adjusted income, meaning that it isn’t just your salary or your take-home pay. It is possible to make adjustments that reduce your total income for certain cost-of-living expenses.

If you aren’t sure if you pass the means test, consider legal help

For those with no income or extremely low income, it can be rather obvious that they will qualify for Chapter 7 bankruptcy protection immediately, even without attempting to adjust their income. After all, they have likely acclimated to living on far less than the state median income.

For others, their household income may currently be at or very close to the limit in Washington. Small mistakes that you make on the means test could be the difference between qualifying for Chapter 7 bankruptcy and needing to either file for Chapter 13 bankruptcy or find another way to repay your creditors.

A Washington attorney with experience in bankruptcy cases can help you review the means test and determine whether or not you may qualify for Chapter 7 bankruptcy protections. They can also help you navigate the complicated process of filing for bankruptcy and securing a discharge.

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