Income In a Bankruptcy Case

Income is important for a number of different reasons.  It is crucial in passing the Means Test, for determining whether you can afford to repay some or all of your debts in a Chapter 13 repayment case and corresponding plan payments.  There are many potential pitfalls in preparing income calculations that could derail your bankruptcy case.  Therefore, you will need an experienced bankruptcy lawyer to ensure that your income calculations are performed correctly and with painstaking precision.

The Importance of Income in Your San Diego Bankruptcy Case

The importance of income in your San Diego bankruptcy case affects whether you qualify for Chapter 7, and how much money you will have to repay to the Court in a Chapter 13 repayment bankruptcy, should Chapter 13 be the route recommended by your attorney.  The importance of consulting with a skilled attorney cannot be overstated.  By anticipating the potential issues that may arise with respect to your income, you can be better prepared for your filing so that your San Diego bankruptcy filing is as painless as possible.

Chapter 7 in San Diego

In order to qualify for bankruptcy in San Diego under Chapter 7,  your total household income must not be greater than the California median household income for a household of your size.  By its very nature, the median household income is always moving target.  The figure changes regularly, since it is based on the actual income of Californians, which fluctuates based on how much money Californians’ are making in a given month, quarter or year.   This is a relatively black and white test.  You calculate your income over the past 6 months, divide by 6 to get a monthly figure and multiply by 12 to get an annual figure (or just multiply the 6-month figure by 2 to get an annual figure), then compare your annualized income to the annual median household income for a household of your size.  This is referred to as taking the Means Test.

Chapter 13 in San Diego

If your bankruptcy attorney recommends that you file for bankruptcy under Chapter 13, then your income will also be important for determining how much of your unsecured debt (credit card, medical bills, and other similar types of debts) you will have to repay in a Chapter 13 bankruptcy case.  This will affect how much it will cost you to get out of debt.

In a Chapter 13 case, your income is also important because in order to have your repayment plan confirmed (approved) by the Court, you will need to demonstrate that you have regular income.  Also, your regular income must be sufficient to be able to repay all of the monthly expenses that you proposed to repay during the repayment term proposed by your plan.  Your disposable income must be enough to make your plan payments so that you can get out of debt San Diego.  Otherwise, you will not be able to demonstrate that you have enough regular income to qualify to file under Chapter 13.

Good Faith Always a Consideration

Regardless of what Chapter you file under, you must always pass a good faith test.  When dealing with income and expenses, good faith is always a consideration.  In a Chapter 7 case, even if you can pass the Means Test, if you have disposable income in your actual budget each month, then the Court will consider your Chapter 7 case abusive and force you to file under Chapter 13 and devote your disposable income to making your monthly plan payments for 3 to 5 years.  In a Chapter 13 case, if you have more disposable income than your proposed plan payments, the Court will force you to increase your plan payments by the amount of additional disposable income that you possess each month.