There are many advantages to filing Chapter 7 Bankruptcy. It allows debtors the opportunity to get back on their feet again and offers a fresh start after the three to four-month process of discharging your unsecured debts. However, not everyone is eligible to file for Chapter 7. There is an income limitation that prevents high-income earners from utilizing this chapter.
Generally, people are eligible to file for Chapter 7 in the following situations:
- Their monthly income is below the median level in their state
- They have an extremely limited disposable monthly income, and
- Their debts are more than half of their income and/or will take more than five years to pay off.
Income limits for Chapter 7 will depend on the state you live in, as well as the number of people living in your household.
Georgia Chapter 7 Income Limitation
The means test consists of two parts. First, you will need to calculate your total household income for the past six months, multiply that number by two (to represent the household annual income) and compare it to the state median income, based on the number of people in your home.
In Georgia, the median income is $47,953 for a single person household, $63,303 for a two-person household, $72,594 for a three-person household, and $82,476 for a household with four. Each additional person in the household merits an additional $9,000 to this figure. These numbers will vary by state and are periodically updated by the US Treasury.
When calculating your sources of income, you should include your normal salary wage, as well as income from side hustles, tips, rental income, and unemployment benefits. Social security income is specifically excluded from this calculation.
If your income is below this threshold, you will automatically pass the means test and qualify to file for Chapter 7 bankruptcy.
Failing this test does not automatically disqualify you from proceeding with a Chapter 7 case. Instead, you will move on to part two of the means test.
In part two of the means test, you will look at your actual household income and allowable expenses, which is a much more thorough analysis of your current financial situation.
In calculating your household expenses, you should include housing and utility expenses, taxes, transportation costs, healthcare expenses, costs for food, clothing, and child care, as well as any court-ordered payments, such a child or spousal support.
Certain expenses, such as your mortgage payment and utility costs will be calculated based on your local, county allowances. This gives a more thorough picture of how your expenses compare to your neighbors and also helps prevent abuse of the system if, for example, your house or car is significantly more expensive than others in your area. Other expenses, such as food and clothing costs, are based on national standards. For numbers such as taxes, healthcare costs, and child care expenses, you will use your family’s specific numbers.
These monthly expenses are then subtracted from your monthly income. The resulting number is your monthly disposable income, which is then multiplied by 60 to obtain your five-year disposable income calculation.
The disposable income numbers were recalculated on April 1, 2019, and fall into three categories.
- If your five-year disposable income is lower than $8,175, there is no presumption of abuse and, based on your income and expenses, you qualify for Chapter 7.
- If your five-year disposable income is greater than $8,175 but less than $13,650, you will have to perform an additional calculation to determine the relationship between your nonpriority, unsecured debt and your current income.
- If your five-year disposable income is greater than $13,650, there is a presumption of abuse. Your income may be too high to qualify for Chapter 7 bankruptcy, unless special circumstances are present, such as a serious medical condition or a recent natural disaster.
The bankruptcy law is set up this way to prevent bankruptcy abuse. Under Chapter 7, unsecured debts are discharged with no payments from the debtor. In order to protect creditor’s rights, high-income earners are not eligible for this plan.
Chapter 13 as an Alternative to Chapter 7
If your disposable income exceeds the Chapter 7 income limitation, you may be able to file for Chapter 13 bankruptcy. Under a Chapter 13 plan, your debts are consolidated and you make monthly payments for three or five years.
These monthly payments will be divided among unsecured priority debts, such as taxes and court-ordered payments, nonpriority unsecured debts, such as your house or car payments, and unsecured, nonpriority debts, such as credit card bills or medical debt.
Although Chapter 13 requires a longer time period than Chapter 7, it offers many of the same debt relief benefits, including an immediate cessation of all debt-collection activities, such as wage garnishment or mortgage foreclosure actions.If you are considering filing for chapter 7 bankruptcy, our team of bankruptcy attorneys is ready to assist you. Every bankruptcy case is different, so it is important that we meet so we can better understand your circumstances. Contact the Law Offices of Jeffrey B. Kelly today to discuss your needs. Call us at 770-637-1756 to schedule a consultation.