I Make Too Much Money

Some people just make too much money to qualify to file bankruptcy under Chapter 7.  If you are a high income earner, you may make too much money to file under Chapter 7 and therefore be required to file bankruptcy under Chapter 13 and repay some or all of your creditors through a repayment plan.  The limits on how much money you can make in order to be able to file under Chapter 7 were intended to curtail what the drafters of the bankruptcy laws perceived as the potential for abuse of the system by high income earners who would rack up credit card debt and then file bankruptcy and eliminate the debt, which they could afford to repay with their high income. 

Do I Make Too Much Money To File Bankruptcy?

Prior to 2005, you could have made tens of thousands of dollars per month and qualified to file bankruptcy San Diego and eliminate all of your debts.  The lawmakers perceived this as a potential for abuse.  So when they redrafted the laws in 2005, they added an income qualification limit that made filing Chapter 7 much more difficult for high income earners. 


The income qualification limit was established through creation of what is called the Means Test.   Today, in order to qualify for bankruptcy relief, you must take and pass the Means Test. If you pass the Means Test you can file under Chapter 7.  By passing, your Chapter 7 is presumed to be filed in good faith and not abusing the bankruptcy law and legal system.  If you do not pass, then it will be presumed that a Chapter 7 filing would be in bad faith, since you could afford to repay some of your debts.  Hence, you will be required to file a Chapter 13 case and repay some or all of your debts (to the extent you can afford to repay) under a court approved repayment plan.


In a Chapter 13 proceeding, you will still take the Means Test, however the test is used for a different purpose.  It is used to determine if you have to pay any money to your unsecured creditors and if so how much.  Unsecured creditors are credit card lenders, medical service providers, phone bills, and the like.  These are creditors who do not have a lien against your assets.  Whereas in a Chapter 7 proceeding, assuming you qualify, you do not have to pay any of your unsecured creditors, in a Chapter 13 you may have to pay part or all of your unsecured creditors. 


How do you determine if you have to pay your unsecured creditors in a Chapter 13?  Well, you take the means test and see how much disposable income you have left each month under that test.  Whatever disposable income you have left, you have to pay that amount each month to the court appointed trustee handling your case, for a 3-5 year period, in repayment of as much of your unsecured debt as it will pay.


So if you’re a high income earner and are wondering if you make too much money to file bankruptcy, call a San Diego bankruptcy attorney and ask them to apply the Means Test to your situation and see what the result is.   Without taking the Means Test, you cannot determine if you make too much money to file bankruptcy.