Can’t everyone do a Chapter 7 or a Chapter 13?

The simple answer is no. The eligibility for a Chapter 7 is based on several things:

Median Income for Household Size – The median income determines what a Debtor or Debtors can file a bankruptcy. Median income is determined by household size. The following is the median family income data for Missouri and Illinois.

 

  Household Size

 

  Missouri

 

      1

 

$41,092

 

      2                    

 

$51,784

 

      3                   

 

$59,549

 

     4

 

$72,150

  Illinois

$47,485

$59,861

$68,721

$80,776

 

 

Don’t panic yet. The means test is a complicated beast. The above amounts are the median income. If your income is higher than above amount for your household size does not mean that you cannot file a Chapter 7. It simply means that we now have to complete the extended means test to determine whether you may still be eligible to file a Chapter 7. There are many expenses that can be calculated to determine eligibility. There are IRS Standard deductions for housing and vehicles expenses depending on whether the vehicle(s) have a debt. Other major expenses in the means test are:

Taxes – Tax obligations that are paid out of your income
Involuntary deduction – Union dues, Mandatory retirement plans and uniforms
Health, disability or term life insurance
Secured debt payments
Court ordered payments
Childcare
Healthcare
Education for employment or disabled child
Charitable contributions

The eligibility for a Chapter 7 also depends on eligibility for discharge. A Chapter 7 discharge can only be obtained every 8 years. Therefore, even if your income makes your eligible for a Chapter 7, you may not be able to file a Chapter 7.

So then if my income does not allow me to do a Chapter 7 I can do a Chapter 13 right?

Not necessarily. While there is not a income limit on Chapter 13’s, there is a debt limit that the Debtor must not exceed in order to be eligible for a Chapter 13 bankruptcy. In a Chapter 13 there are separate debt limits for both secured and unsecured debts. In order to be an eligible Debtor in a Chapter 13, secured debts must not exceed $1,149,525.00. In order to be an eligible Debtor in a Chapter 7, unsecured debts must not exceed $383,175.00. In debts listed on the schedules exceeds these amounts, the trustee can move for dismissal of the bankruptcy.  Often times these amounts in excess are foreclosed homes or student loans.