Did Chapter 7 Bankruptcy Just Become More Difficult?

Chapter 7 bankruptcy has many advantages.  It can wipe out all of your credit card debt, medical bills, and most unsecured debts.  However, it has a couple of downsides – one of which is that you must qualify for a chapter 7 bankruptcy.  How it works is we are required to disclose your monthly income and the total number of people who live in your home.  We then compare your income for your household to the average income for that same household size in Arizona or the state where you live.

For instance, right now in Arizona if you have a household of four, so long as you make less than $61,267 per year, you will qualify to file a chapter 7 bankruptcy.  However, the United States Trustees Office updates these average household income numbers periodically throughout the year and adjust them based upon if incomes are going up or down in your neck of the woods.

On November 1, 2012 the income numbers will change and in Arizona the numbers are going down.  What does that mean?  It means that the average income for Arizona households has apparently gone down over the last several months and as a result it makes qualifying for chapter 7 bankruptcy a little more difficult.  Mind you that the decrease is not great, but sometimes when you are right on the boarder it can make it more difficult.  Starting November 1 if you have a family of four and live in Arizona the income limit for filing a chapter 7 bankruptcy is $59,786 – or about a $2,000 per year reduction.

So what if you are over?  All is not a lost.  You may still qualify for a chapter 7 case.  There are over 20 deductions that can be made that can help you in reducing your income to the point where you will still qualify.  We can deduct things like the taxes you pay, your mortgage payment, car payments, medical bills, term life insurance, disability insurance, charitable contributions/tithing, child care expenses, etc.

The point here is, if you need to file chapter 7 bankruptcy and you are worried that your income is right on the boarder, you may want to file sooner rather than later.  However, even if you are above the average income limits you may still be able to file a chapter 7 case depending on the deductions you have.