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- If you file bankruptcy as an individual, you must typically choose between Chapter 7 and Chapter 13. If you file Chapter 7, the bankruptcy trustee seizes your nonexempt assets to pay your creditors as much money as possible, and the court discharges most of your remaining debts. In Chapter 13 bankruptcy, however, you must pay your creditors over several years using a payment plan. In Chapter 13, secured creditors must receive the full amount of their debt, and you must pay unsecured creditors as much as the trustee determines you can afford.
- Under federal law, you can proceed with Chapter 7 bankruptcy only if your income is below your state's median or you pass the means test. If you fail the means test, the court must either dismiss your case or convert it to a Chapter 13 case. To pass the means test, your adjusted monthly income over the past five years must be no more than $11,725, or 25 percent of your unsecured debt, as long as 25 percent of your unsecured debt is at least $7,025.
- For Chapter 7 evaluation purposes, your adjusted monthly income is typically the sum of all payments you receive from any outside source minus allowable expenses, which may include the cost of health insurance, food, clothing, household supplies, home energy and educational expenses for dependent children. If you receive certain types of income, such as payments mandated by the Social Security Act or payments made to victims of terrorism and war crimes, you don't have to include it in your income for the means test. Alimony payments, however, are not exempt from inclusion.
- Receiving alimony payments doesn't prevent you from filing either type of bankruptcy. However, if the alimony payments cause your income to be too high to pass the means test, you can't file Chapter 7 bankruptcy. In this case, you may file Chapter 13 bankruptcy, or you may elect not to file bankruptcy at all.
About Bankruptcy
Means Test
Calculating Income
Implications
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