It is not surprising that the general public does not understand exactly how filing for bankruptcy works. In fact, many people ask my opinion as to whether they have to be unemployed to qualify for filing bankruptcy. The answer is no, you don’t have to be unemployed or have a minimal amount of income to file for bankruptcy. You do however have to be below the median income for your state and family size to qualify for a chapter 7 bankruptcy. A chapter 7 bankruptcy wipes away most unsecured debts without having to make any kind of payment on the unsecured debts. A chapter 13 bankruptcy may be filed when debtors are above the median income for their family size. A chapter 13 bankruptcy requires debtors to go on a payment plan of 3-5 years and payments will be based on the debtors available disposable income to put towards creditor payments.
In the event a debtor makes above the median income for their state and family size they may still qualify for a chapter 7 bankruptcy through the use of what is called the means test. The means test factors in additional expenses in which a debtor might have in additional to normal everyday expenses. The means test also takes into account deductions from your gross income on your paychecks for federal and state taxes, medical and any other mandatory deduction. Other expenses that will affect the means test include car payments, charitable contributions, child support payments or alimony, out of pocket medical, as well as daycare expenses. Not all additional out of pocket expenses however will affect the means test as this test is what the federal government has determined are the factors that affect whether you have disposable income. In the 9th circuit which includes WA, ID, CA and OR among other states, the means test is also a factor in determining what your monthly payments will be if you have to file a chapter 13 bankruptcy.
If you have additional questions please schedule a free consultation with a bankruptcy attorney in Seattle by calling 206-682-7975