Can I file Chapter 7?
That’s easy, usually.
If your income is under the state’s median average depending on family size, and you do not have the income to pay back your debts, then, yes, you can file.
Also, you cannot have received a bankruptcy discharge under Chapter 7 in a case filed within the last eight years, or under a Chapter 13 case filed within the last six years. However, if you paid at least 70% of your unsecured debts, then the six year rule does not apply.
Also you cannot have defrauded creditors. Bankruptcy can only be used by honest people. For example, if you have transferred assets to friends or family members, incurred debts for luxury items when you were broke, or misled lenders about your finances, the court will not grant you a discharge of your debts.
Also, there is a residency requirement to file here in Western Washington.
The fine print.
OK, we simplified this subject to make it more understandable. What if my income is near the state’s median average? How do I exactly compute my average income for the test?
You take the average of your actual gross income for the six calendar months preceding the calendar month in which you will file the bankruptcy petition. Multiply that average by 12. That figure must be under the state’s annual median average (which changes from time to time). The state’s median income average depends on your family size. Bigger families have larger median incomes. Call us for help on this. This can get complicated. For example, income for bankruptcy purposes is much broader than income for federal income tax purpose.
Even if you flunk the median average income test, there is another test. This alternate test sometimes referred to as the means test, is essentially a cash flow analysis based on IRS allowed living expenses. This is very complicated and you definitely need professional advice. In fact, we rely on bankruptcy software to help us compute the means test and it’s still complicated. However, if your income is above the state’s median average for your family size, having large mortgage payments and/or car payments will help you pass the means test. A large income without large secured debts will almost guarantee that you will flunk the means test and preclude you from filing Chapter 7.
Also, regardless of your secured debts, if your income is way, way over the state’s median average for your family size, even sizable secure debts will not help. Also, there comes a vague income threshold where, even if you pass the means test on account of sizable secured debt, the U.S. Trustee will contest your discharge on account of your income being so large. In those cases, the U.S. Trustee wants you to file Chapter 13 instead.