Things to be aware of if facing bankruptcy 2

I am continuing a series of posts on “don’ts” to be aware of if you are facing bankruptcy. This “don’t” is particular to filing a Chapter 7. Do not file a Chapter 7 if your income significantly exceeds your expenses. This takes a little explaining.

The means test determines whether you can file a Chapter 7 or not. However, it is not the end of the story. Because the means test is focused on the income of the six month preceding the month in which you file bankruptcy, it is somewhat arbitrary. Your current income on Schedule I is presumed to be the same as the average of those six months UNLESS there is something definite and quantifiable that is going to be different going forward.

For example, you may have just started or about to start a new job that pays MUCH better than what you had been making. That should be reported in your Schedule I. And, it may cause your disposable income (income minus reasonable living expenses) to be too high.

In my experience, I prefer a debtor going into Chapter 7 to have a disposable income of $150.00 or less per month on their Schedule I and J, but there is some wiggle room there. However, the worst case scenario if your disposable income is much higher than that is to either convert to a Chapter 13 or get dismissed from bankruptcy which causes greater legal expenses.