Are You Eligible for Chapter 7 Bankruptcy in North Carolina? Take the Bankruptcy Means Test to Find Out
The Chapter 7 bankruptcy means test can determine if a North Carolina petitioner’s income level and expenses are eligible to file for a Chapter 7 bankruptcy. The formula is designed to prevent individuals from Chapter 7 bankruptcy if they make enough money to pay down unsecured debts. If an individual does not qualify for Chapter 7 as determined by the Means Test of North Carolina, he or she may be able to file for a Chapter 13 bankruptcy to repay a fraction of the accrued debt.
Taking the Chapter 7 means test does not necessarily entail that an individual has to be impoverished to be able to file for a Chapter 7 bankruptcy. An individual who qualifies for a Chapter 7 bankruptcy in North Carolina may still have a high income if he or she has high car and/or mortgage payments, high taxes, and/or other expenses.
Understanding How A Chapter 7 Means Test Works
The Chapter 7 means test was designed to limit the use of a Chapter 7 bankruptcy to individuals who can no longer pay off their debts. The Chapter 7 bankruptcy works by subtracting certain monthly expenses from the individual’s present monthly income. The current income will be determined by the person’s last six (6) month’s income prior to filing for bankruptcy. This will determine the person’s available income.
If a person has a high amount of available income, the more likely it is that he or she will not be able to use a Chapter 7 bankruptcy to pay off the accrued debt. Instead, the individual will be expected to use the available funds to repay creditors.
Another important factor is that you only need to take a means test if the bankruptcy filer has predominantly consumer debts in North Carolina, not business debts.
How to Determine if the Earned Income is Greater than the Residential State’s Average Earnings
One of the initial questions in the Chapter 7 means test asks if the petitioner earns an income that is below the average income of his or her home state. If this is shown, the petitioner will not longer need to complete the rest of the means test. He or she will be a qualifying applicant for a Chapter 7 bankruptcy.
While the standards for this determination change fairly often in order to reflect increases in inflation and cost of living, the North Carolina income averages currently break down as follows:
- For a one-person household: $46,438
- For households with two people: $57,951
- For households with three people: $66,361
- For households with four people*: $78,009
*For all households that exceed four people, add $8,400 for each individual in excess.
How to Determine if an Individual has an Income Surplus to Repay the Debt Accrued
If your earnings exceed North Carolina’s average income, which currently hovers around $47,830, the means test’s calculations become more complex. You must then calculate how much of your income is available to pay off your debt. If this income surplus is extensive, you have failed the Chapter 7 bankruptcy means test and cannot file for a Chapter 7 bankruptcy.
It is important to note that determining the “average” level of income depend on the residential state and household size. It also depends on the petitioner’s city and/or county. The domestic location of the petitioner can greatly impact the acceptable means test amounts. For instance, wealthier counties in North Carolina, such as Orange County, will naturally demand a higher cost of living than others, which may benefit your bankruptcy petition.
How to Determine if You Need a Consumer or Business Bankruptcy
To be able to file for a Chapter 7 bankruptcy, the debt accumulated has to be consumer debt; therefore, a person who has business debt does not qualify to file for a Chapter 7 bankruptcy. If you have debt relating to business expenses, a means test is not necessary.
If the debt collected is mainly comprised of business expenses, that individual will need to file for a business bankruptcy.
Successfully Passing the Chapter 7 Bankruptcy Means Test
Passing the means test is not the last step in the process, as it is not the only qualifying factor. In North Carolina, petitioners will be required to also submit two forms. These forms are known as Schedule I (Income) and Schedule J (Expenses). If the individual has an income surplus, he or she will be court ordered to pay creditors monthly. This changes the case to a Chapter 13 bankruptcy.
Finally, qualifying for a Chapter 7 bankruptcy does not mean that a petitioner must file one. The test will simply determine that the petitioner can file for a Chapter 7 bankruptcy. It is important to explore all the available alternatives prior to making a decision. A qualified bankruptcy attorney versed in the laws local to North Carolina is a invaluable resource for determining if a Chapter 7 bankruptcy is the best decision.
Need Help with the Chapter 7 Bankruptcy Means Test?
Despite the wealth of information available to help us understand the Means Test and who qualifies, the particular circumstances of individual filers can greatly vary. A qualified Pennsylvania bankruptcy attorney at your side can help fully allay your concerns, and help you understand how you can pass the means test and file for Chapter 7 bankruptcy.