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The first step to filing for bankruptcy is verifying that you qualify. It’s fairly easy to qualify for a Chapter 13 reorganization bankruptcy, but Chapter 7 liquidation bankruptcy has strict income qualifications that must be met.
Chapter 7 Bankruptcy Qualifications
Chapter 7 is designed for consumers who truly cannot afford to repay all of their debts. To qualify for Chapter 7, you must pass the means test or analysis that compares your total debt amount, income, and expenses. If you do not pass the means test and you have enough disposable income to pay back even some of your total debt, you will need to file for Chapter 13.
Understanding the Means Test
The means test measures your current monthly income (averaged over the last 6 months) against the median income for the same household size in Nevada. If your income is less than the median for your household size, the means test is complete.
In 2016, for example, median Nevada incomes by family size are:
- 1 member household: $4,215
- 2 member household: $5,545
- 3 member household: $5,901
- 4 member household: $6,820
- 5 member household: $7,520
It’s important to note that you cannot include a roommate who is not a dependent in your household size, but any amount of their income that contributes to the household’s income may need to be included.
If your monthly income exceeds the median income limit, the means test proceeds to a second step to determine your disposable income after paying the necessary expenses. Several expenses can be taken into consideration to reduce your disposable income amount, including health care expenses and child care.
If your income is expected to decline or has dropped recently, it may be in your best interest to wait one month or more to reduce the six-month monthly income average to qualify for Chapter 7.
The means test allows even people who earn significant income each month to qualify for Chapter 7 as long as they have a lot of expenses, such as high car loan and mortgage payments and taxes.
Chapter 13 Bankruptcy Qualifications
With Chapter 13, you can cure defaults and keep more of your property. To qualify for a debt reorganization plan under Chapter 13, you must have some source of income and the ability to maintain your 3 to 5-year repayment agreement. Your total secured and unsecured debt must also fall below a certain limit that is adjusted periodically. To qualify, you will need to submit proof you have filed state and federal income taxes for the 4 years prior to filing.
The next debt level adjustment will occur on April 1, 2019. Until then, you cannot qualify for Chapter 13 if your secured debts (such as a mortgage or car loan) exceed $1.184 million. Your unsecured debts like credit card debt and medical debt cannot exceed $394,725.
Contact a Las Vegas Bankruptcy Lawyer
Not sure if you qualify for Chapter 7 or Chapter 13 bankruptcy? A qualified bankruptcy attorney in Nevada can help you examine your financial decision, determine which type of bankruptcy you can file, and help you decide which option is best in your situation. Contact Vegas BK today for a free consultation with a bankruptcy lawyer in Las Vegas.