Federal law sets income-based limitations on which consumers can file a Chapter 7 bankruptcy, as well as certain conditions on other types of bankruptcy. Suppose your disposable monthly income is too high based on the means test established under Federal law. In that case, the Bankruptcy Code may not bar you from declaring bankruptcy altogether, but your filing options will be limited.
If more than half of a person or married couple’s debt is business-related, the Code considers them to be “non-consumer,” and the means test does not apply. They can file Chapter 7 without passing the means test.
Anyone with questions about their own bankruptcy eligibility in Salt Lake City should get in touch with an attorney as soon as possible. A knowledgeable bankruptcy lawyer can help you understand how the means test works, prove that you pass it, or explain the alternatives if you do not.
The first stage of determining bankruptcy eligibility in Salt Lake City involves calculating the petitioner’s yearly income. The means test calculates yearly income by averaging the petitioner’s monthly income over the prior six months, then multiplying by 12. If this total is less than the median income for a Utah household of the same size, the law automatically assumes this person is eligible to file for Chapter 7 bankruptcy. They could also be eligible for a three-year repayment plan instead of a five-year plan through Chapter 13 bankruptcy.
If a petitioner’s yearly income exceeds the statewide median, they will need to proceed with the means test. This test involves subtracting allowable expenses, such as legally obligated payments and basic survival needs, from all forms of income the petitioner takes each month to calculate their total “disposable income” per month.
If a petitioner’s monthly disposable income determined by the means test is less than $7,475, they are eligible for Chapter 7 bankruptcy. If it is between $7,475 and $12,475, they may still be eligible, but they may need to complete additional calculations to find out. Anyone with more than $12,475 in disposable income per month fails the means test and cannot file for Chapter 7 bankruptcy.
Individuals who fail the means test are still eligible to file for bankruptcy in Salt Lake City, but they will need to file under a different chapter other than Chapter 7. For example, Chapter 13 still allows individual petitioners to have certain debts discharged, but with the caveat that they will have to establish repayment plans to pay at least some of those debts back in most cases.
Just because someone qualifies to file for Chapter 7 bankruptcy does not mean it is a good idea for them to file under that chapter. While Chapter 7 bankruptcy usually allows for the discharge of more unsecured debt, it will rarely enable petitioners to keep property associated with delinquent secured debts, such as vehicles or houses. A bankruptcy attorney can discuss in detail with an individual debtor what their means test results might mean for their eligibility to file in Salt Lake City.
In a broad sense, everyone in the state of Utah is technically eligible to file for bankruptcy. Still, it may be challenging to determine which chapters of the Bankruptcy Code under which their income allows them to file. Individuals with substantial disposable income that could go toward debt repayment might have limited options, while individuals under dire financial strain are usually not as restricted.
A legal professional can answer any questions you have about bankruptcy eligibility in Salt Lake City during an initial consultation. Call today to learn more.