There are several different kinds of personal bankruptcy. Of all of those options, Chapter 7 bankruptcy is the most restrictive. Only individuals who meet very strict financial requirements can file for Chapter 7 bankruptcy. You have to pass a means test before you even file.
The means test involves comparing your household income to the state median based on the size of your household. You get to adjust your income for certain allowable expenses, a process that often requires professional help.
How do you know if you passed the means test or not?
The income guidelines change frequently
The median income across the state fluctuates. Many factors influence what the average household income is in Alabama. The means test changes as well to reflect changing economic circumstances.
A single person with no dependents can qualify for Chapter 7 bankruptcy with an adjusted gross income of $52,138 or below. For a two-person family, the cutoff increases to $63,401. In families with three people, the income can be as much as $70,250, and a family with four people can have up to $85,687 in income. Larger families can add another $9,000 for each additional family member.
For some people, it will be quite clear that they pass the means test by falling below the income limit. For others, their household will be right on the edge of qualifying. Those who are close to qualifying may need to have an in-depth conversation with someone more familiar with the Chapter 7 bankruptcy rules.
Understanding how Chapter 7 bankruptcy works can help you get the protection of this powerful financial tool.