Income in Bankruptcy: Why the Government may think you’re rich
Another question we get at LifeBack Law, “How will my income be determined in bankruptcy?” is a great question. Income can vary. Sometimes we receive overtime and bonuses; other times, we barely get our promised hours. How can you give an average income when it changes so frequently? This blog explores how income is calculated in both a Chapter 7 and a Chapter 13 and why it matters.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, the goal is to discharge most unsecured debts quickly. The calculation of your income will determine whether you qualify for Chapter 7 bankruptcy and how the trustee will handle your case. We calculate your income using the “means-test.” This involves taking your average gross month income over the last six months (not just your salary but also all other sources of income such as bonuses and rental income) and annualizing it to get an approximate annual income. If your income falls below the median level, you may qualify for Chapter 7 bankruptcy. If your income is above the median, you will need to do further calculations to determine if Chapter 13 bankruptcy allows you to pay off a portion of debts. Certain incomes do not need to be included such as social security, social security disability, or VA disability.
Chapter 13 Bankruptcy
On the other hand, a Chapter 13 bankruptcy involves creating a repayment plan to pay off some or all of your debts over three to five years. This repayment plan is based on income calculations. To determine your income, we still use the same means test as a chapter 7 to determine it. The main purpose of calculating your income in a Chapter 13 is to determine the amount of disposable income you have. Once we have calculated the average, we subtract living costs and allowable expenses from your total income in order to calculate your available income. These deductions include mortgage payments, car loan, insurance, and certain living expenses. The bankruptcy court will review and approve your repayment plan, ensuring it’s feasible based on your financial situation. The bankruptcy court will review and approve your repayment plan, ensuring it’s feasible based on your financial situation.
CALL NOW FOR A FREE STRATEGY SESSION FROM AN MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM
If you’ve experienced a change in income and are worried about your debts, look no further than Minnesota’s nicest bankruptcy attorneys. Visit us at lifebacklaw.com and schedule a free consultation today.
