In most cases, Chapter 7 bankruptcy is restricted to those whose income is not considered too high to qualify for bankruptcy. The federal bankruptcy rules have two different income-based tests for the purposes of qualification. As long as you can pass one of the two tests, you will qualify for Chapter 7 bankruptcy. Additionally, there are some special circumstances that will allow you to qualify even if your income would otherwise be considered too high under both of the tests.
The Two Income Tests
- The Median Test
The median test is the first of the two income calculations for bankruptcy qualification. The court compares the size of your family and your total income to the median income for a family of your size where you live. If you make less than the median amount for a family of your size, you qualify for Chapter 7 bankruptcy. If you make more than the median, you fail the test and will have to take a second test to see if you still qualify.
- The Means Test
The second income test is the means test. It involves a complicated set of calculations that analyzes your income and family size, compared against certain monthly expenses. If you have a significant amount of specific kinds of expenses, you could potentially qualify for Chapter 7 bankruptcy, even though you do not qualify under the median test.
Because the kinds of expenses that are allowed are limited and the calculation is complex, it is best to consult with an experienced bankruptcy attorney to see if you qualify under the means test. Most reputable attorneys will meet with you for a free or discounted consultation in order to determine your eligibility for bankruptcy under this test.
Unique Circumstances
IRS Debt and Non-Consumer Debt
The federal bankruptcy laws contain a special provision if most of your debts are of a specific type. If your debts are primarily IRS debt or non-consumer debt (typically business debts) then you can qualify for Chapter 7 bankruptcy even if your income is too high to pass both the means test and the median test.