Filing for Chapter 7 bankruptcy can provide much-needed relief for those with overwhelming unsecured debt. However, Chapter 7 does come with income limits to qualify. If your income is too high, you may be required to file Chapter 13 instead. So how much money is too much for Chapter 7? Let’s take a closer look.
Income Limits for Chapter 7
To qualify for Chapter 7 bankruptcy, your income must fall below the median income level for your state. The median income is based on your household size. Here are the current median income levels by household size:
| Household Size | Median Income |
| 1 | $50,107 |
| 2 | $62,969 |
| 3 | $68,396 |
| 4 | $83,812 |
So if your household income exceeds the median for your household size in your state, you may not qualify for Chapter 7. You can find your state’s specific median income levels on the U.S. Trustee’s website.
The Means Test
In addition to meeting the median income requirements, you must also pass the Chapter 7 means test. This test determines if you have enough disposable income left over each month to repay some of your unsecured debts.
As part of the means test, you calculate your current monthly income (CMI) based on the past 6 months. You then compare your CMI to your state’s median income. If your CMI is below the median, you pass the means test and can likely file Chapter 7.
If your CMI exceeds the median, you must deduct certain allowable living expenses from your monthly income. These include things like housing, transportation, food, utilities, and other essential expenses. You may also be able to deduct payments on secured debt like a mortgage or car loan.
After the deductions, if you have $170 or more left per month, you fail the means test. You could still qualify for Chapter 7 but would need to demonstrate special circumstances.
What If You Fail the Means Test?
If your income is too high to pass the means test, all hope is not lost. You may still be able to file Chapter 7 if you can show special circumstances.
For example, you may have recently lost your job or had other financial hardship. Or you may have high medical bills due to an unexpected illness or injury. Other possible special circumstances include:
- Active military duty
- Unusually high childcare or elder care costs
- Expenses related to caring for an ill, disabled, or aging family member
- Being the victim of a natural disaster, bankruptcy fraud, or identity theft
You would need to provide documentation to prove these special circumstances. If the court agrees they impact your ability to repay debts, you may still qualify for Chapter 7.
Debt Limits in Chapter 7
In addition to income limits, Chapter 7 also imposes debt limits. If you have too much debt, you may be required to file under Chapter 13 instead.
There are two debt limits to be aware of:
- Secured debt limit – Your total secured debt must be under $1,257,850. This includes the balances on mortgages, car loans, and any other loans backed by collateral.
- Unsecured debt limit – Your unsecured debt cannot exceed $438,875. This includes credit cards, medical bills, personal loans, and other debt not tied to an asset.
As long as your total secured and unsecured debts fall below these limits, you can likely proceed with Chapter 7.
Other Chapter 7 Eligibility Requirements
Meeting the income and debt limits is essential for Chapter 7 eligibility. But a few other requirements also apply:
- You must complete pre-filing credit counseling no more than 180 days before filing.
- You cannot have filed Chapter 7 bankruptcy within the last 8 years.
- You must pass the means test or prove special circumstances.
- You must provide documents including tax returns and income verification.
- You cannot have dismissed a previous bankruptcy within the past year.
As long as you meet all the eligibility criteria, you can file Chapter 7 regardless of your income amount or how much debt you have. The income and debt limits help determine if Chapter 7 is your best option or if Chapter 13 would be better.
The Pros and Cons of High Income in Chapter 7
A higher income can make qualifying for Chapter 7 more difficult – but not impossible. Here are some pros and cons to consider if your income exceeds your state’s median:
Pros
- Higher income provides more cushion for unexpected expenses
- You may have more options to repay some debt and still qualify
- You can likely better afford the Chapter 7 attorney and filing fees
- Judges may look more favorably on waiving means test if income is now lower
Cons
- Harder to qualify for Chapter 7 with income above median
- More at risk for failing means test based on disposable income
- May be pushed into Chapter 13 instead, requiring repayment plan
- Higher income reduces options like using IRS standard expenses
While a higher income makes Chapter 7 eligibility less guaranteed, it is still possible with proper planning. An experienced bankruptcy attorney can help maximize your chances of qualifying.
How Much Money Is Too Much for Chapter 7?
There is no specific income cutoff that makes you automatically ineligible for Chapter 7. However, the higher your income compared to your state’s median, the harder it will be to qualify.
Likewise, having an exorbitant amount of assets or property could also make Chapter 7 difficult. The court wants to see you are legitimately in need of debt relief and not just using Chapter 7 to escape debts you could otherwise afford to repay.
According to most attorneys, here are some income and asset guidelines for Chapter 7 eligibility:
- Income below median – Chapter 7 very likely
- Income up to 20% above median – Chapter 7 still possible
- Income more than 20% above median – Chapter 7 more difficult
- Income more than 30% above median – Chapter 7 unlikely
- Assets above state exemptions – May need to liquidate to qualify
These are not hard cutoffs, just general guidelines reported by attorneys. Every situation depends on your full financial profile and expenses.
How to Improve Your Chances of Qualifying
If your income or assets are borderline for Chapter 7, there are some things you can do to improve your chances of qualifying:
- Lower your income before filing by deferring bonuses, reducing overtime, or taking unpaid leave
- Minimize assets by paying down liens secured against property
- Sell non-exempt assets and use proceeds to pay down debt
- Convert luxury vehicles or properties to more affordable options
- Pay down secured debts to reduce monthly payments
- Shift income to a non-filing spouse or ask them to take on more expenses
- Incur necessary, but non-recurring expenses to reduce leftover income
- Document special circumstances like job loss, unexpected medical bills, etc.
With smart pre-planning, even those with high incomes or substantial assets may be able to qualify for Chapter 7 relief. Seeking guidance from a bankruptcy attorney is essential.
Final Tips for Higher Income Chapter 7 Filers
Here are a few final tips for higher income filers pursuing Chapter 7 bankruptcy:
- Be ready to provide plenty of documentation – From tax returns and pay stubs to expenses and assets, expect to verify details.
- Hire an experienced attorney – Find one familiar with getting higher income filers Chapter 7 relief.
- Don’t hide anything – Full financial disclosure is required; hiding assets could lead to dismissal or denied discharge.
- List all special circumstances – Ensure anything impacting your ability to repay debts is documented.
- Sell unexempt assets if needed – You may need to liquidate assets above exemption levels to qualify.
With proper preparation and an experienced attorney, many higher income filers can successfully qualify for Chapter 7. The key is showing it is truly the best debt relief option for your situation.
Conclusion
Chapter 7 bankruptcy provides a fresh start for those struggling with excessive unsecured debt. However, filers need to meet income, asset, and debt eligibility limits. Having higher income can make qualifying more difficult but definitely not impossible.
Work closely with your attorney to document expenses, lower disposable income, and prove special circumstances if needed. This allows higher income filers to demonstrate Chapter 7 is still the right debt relief choice for their specific situation. With thorough preparation, even six-figure earners can pass the means test and get the full discharge their finances require.