As a bankruptcy attorney in Asheville, NC, one of the most common questions I speak with clients about is what type of relief they qualify for. The ‘means test’ was implemented by Congress in 2005 in part to limit Chapter 7 relief to only the individuals who truly need it.
The means test limits the use of Chapter 7 bankruptcy by excluding people with significant ‘disposable income’ from being able to file for relief. The theory is that if there is extra money in the budget each month, the ‘disposable income’ should go to pay off creditors instead of into the debtor’s pocket.
Under Median Income
If your household income is below the ‘median income’ for North Carolina (assuming you live there), you automatically qualify for Chapter 7 relief. You do not even need to consider your expenses. Here is a breakdown based on household size for North Carolina:
1 person: $38,478
2 people: $52,355
3 people: $57,301
4 people: $70,134
** Add $6,900 for each additional household member
Over Median Income
If your household income is above the median income, I would then need to look at your monthly expenses to determine whether there is ‘disposable income’ available to pay unsecured creditors. Frequently, debtors over the median income for North Carolina still qualify for Chapter 7. Having children, a large mortgage payment, out of pocket health care costs, or support payments stemming from a divorce are all examples of expenses which would reduce ‘disposable income’ and make qualifying for Chapter 7 more likely.
Know Your Rights
The best way to make a decision about what to do next is to figure out your options. If you are ready to spend about 30 minutes with me, we can likely do just that during a free, initial bankruptcy consultation.
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