What Income Is Exempt From the Chapter 7 Means Test?

Income

• If your average income for the six months before you file falls below your state median, you definitely qualify for Chapter 7, the Nolo legal website states. If not, you can take the means test, which measures your income after adjusting for living expenses. The cut-off income for the test varies by where you live: The higher the cost of living in your city or county, the more income you're allowed to have. Nolo has an online calculator that can help figure out whether you pass.
  
  

Types

• When you're comparing your income to the state median or using it in the means test, you don't count all forms of income. The FindLaw website states that you should exclude, for example, tax refunds, Social Security retirement and disability benefits, Supplemental Security Income and Temporary Assistance for Needy Families. If the rest of your income--including wages, commissions, rental income and dividends--exceeds the Chapter 7 cut-off, you can file only Chapter 13. In Chapter 13, you pay off as many of your debts as possible over three or five years before you receive a discharge.
  
  

Limitations

• There are many debts you can't discharge by going through bankruptcy, the U.S. Courts website states, including alimony, child support, recent back taxes and damages you're paying for a DUI incident. Chapter 7 can discharge a mortgage, but not your lender's claim on your house, so the lender can still foreclose. In some circumstances, it might be better for you to file Chapter 13, through which some of the debts you can't discharge can be paid off as part of the multi-year plan.
  
  

Warning

• When you file Chapter 7, you'll have to provide the court with a complete list of your income, assets, expenses and debts. The U.S. Courts warn against concealing information, or omitting sources of income, to make sure you qualify. If the court discovers you've falsified your filing, it can require you to file Chapter 13 instead, or reject your petition completely. If rejected, you must wait months before filing again, during which time you have no protection from your creditors.