If you have a high annual income, you may be wondering about the income restrictions on filing Chapter 7.  If your annual income is above the median family income in your state, you may not qualify to file for Chapter 7.  If you earn too much (beyond a certain threshold), your only available option may be Chapter 13.  New income restrictions on Chapter 7 were enacted as part of the new bankruptcy laws passed in October 2005.

People who earn high annual incomes must complete a “means test” which requires detailed information about your income and expenses.  The results of the “means test” will determine whether you qualify to file Chapter 7 – or whether your annual income is too high.  If the means test shows that you have a certain amount of income left over that could be paid to unsecured creditors, then the bankruptcy court can decide that you cannot file Chapter 7.  The income cap is based on the median income in your state, your household size, and your total household income for the past 6 months (before filing).  All borrowers must qualify based on household income – even if you are filing alone.

You income will be calculated based on your average gross income (before taxes) for the last six months.  For qualification purposes, this excludes any benefits you earn under the Social Security Act.  Your spouse’s income (if you are married) is included – unless you complete separate tax returns and have declared separate households.  The state median income is calculated based on the Census figure for median personal gross income in your state.  You will use the Census figure with the same number of people in their household as you.

If your annual income is above the median state income for a household of your size, then you do not qualify to file for Chapter 7 bankruptcy. However, this calculation can be affected by different legal interpretations, such as whether unemployment compensation is a benefit under the Social Security Act.  Talk to an experienced bankruptcy attorney to determine whether your income is too high to file Chapter 7 bankruptcy.