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Transcript:
How income affects your bankruptcy options is that there is a mathematical formula that the court uses.
It’s called the Means Test, which takes into account your household income, the number of people in your household, and then there are certain types of expenses that are pretty much set.
You have allowances for those, but then there are other expenses, such as the amount of your house payment, that depend on your specific situation.
But the income is the biggest factor in that mathematical formula, and that essentially determines whether someone is eligible to file a Chapter 7 bankruptcy case — which, the Chapter 7 just completely wipes out
all of your unsecured debt, such as credit cards and medical bills.
So there are some people that might have too high of an income, where the mathematical formula shows
that there would be money left over to be able to make some payments to pay at least some percentage of their debt back in Chapter 13.
But it’s not something people should worry about, because most people — and a high percentage of the potential clients that contact us — they pass that Means Test with no problem and are eligible to do a Chapter 7.
And everyone qualifies to do a Chapter 13 bankruptcy, which is the payment plan, no matter what their — how high their income is.
But if people qualify to do a Chapter 7 bankruptcy, then that means in Chapter 13 they’re not really going to have to pay anything back toward their unsecured debts, such as credit cards or medical bills.
And they’re only paying other things that they’re trying to protect, maybe a house, back house payments, a car, maybe some recent IRS taxes, things like that.
So that’s a common misconception that people think in Chapter 13 they have to pay back all of their debt, and that’s just not the case at all.
But for Chapter 7 eligibility, the income is a factor, but don’t overrate that. For most people, it’s not a problem at all.
