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Is There an Income Limit for Filing Bankruptcy?

Is There an Income Limit for Filing Bankruptcy?

Date: Jul 28, 2022
In: Bankruptcy

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Is There an Income Limit for Filing Bankruptcy?

Bankruptcy is a complicated legal matter that can be daunting, but the results can allow you to overcome financial difficulties in a way that you may not have considered possible. A Chapter 7 bankruptcy allows the liquidation of specific assets to pay your creditors, and an income limit – or means test – generally applies. Better understanding this income limit will help you better understand if Chapter 7 bankruptcy might be an option for you. Because bankruptcy is legally complex, reaching out to an experienced California bankruptcy attorney is an important first step.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type of bankruptcy that those experiencing crushing debt employ, and it involves a liquidation process (for any non-exempt assets) in which the court sells specific assets in order to pay off creditors. There are specific exemptions – primary assets – that filers are allowed to keep in the bankruptcy process, including but not limited to:

  • Your car (up to a specific value)
  • A portion of the equity in your home
  • Your reasonably necessary clothing
  • Your reasonably necessary household goods, furnishings, and appliances
  • Your jewelry (up to a specific value)
  • Your pension

The idea is to allow those who go through bankruptcy the opportunity to keep the basic assets that provide them with a fresh financial start after bankruptcy. Working with an experienced Chapter 7 attorney can often mean that no liquidation occurs, because all of your assets are properly protected by exemptions.

The Means Test

There is a Chapter 7 full means test that higher-income filers (who are above the state income median for household size) must pass. Those who fall below the median are exempt from this full means test. These income caps take the income of all earners in the household into consideration and also factor in the total number of people in the household. Consider the following basics:

  • If you live alone, you can earn up to $5,244.83 monthly ($62,938.00 yearly).
  • If there are two of you in your home, the earning cap rises to $6,952.92 monthly and to $83,435.00 annually.
  • If there are three of you in your home, the cap is $7,727.92 monthly and $92,735.00 annually.

(These figures are adjusted periodically with the Court, so please make sure you are using the latest figures.)

If your income exceeds these limits, you will need to take the full means test, which involves calculating your total income and subtracting out all allowed expenses. You will compare this amount against the cap in the full means test to determine if you qualify for a Chapter 7 bankruptcy. The income limit for one person as of April 1, 2022, is $65,895, but the cap figures are generally updated twice a year. 

An Experienced California Bankruptcy Attorney Is Standing by to Help

The seasoned California bankruptcy attorneys at Miranda, Magden & Miranda, LLP, have a wealth of focused experience helping clients like you successfully navigate the complicated Chapter 7 bankruptcy process – allowing them to emerge on the other side with improved financial prospects that accommodate fresh starts. We are here for you, too, so please do not hesitate to reach out and contact us for more information about how we can help today.

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