Can family support obligations help me qualify for Chapter 7 bankruptcy?

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Question:

I have above average income but I pay a lot of alimony and child support. Can i qualify for chapter 7 bankruptcy?

Answer:

If you pay lots of alimony and child support, that might help you pass the Chapter 7 means test and qualify for Chapter 7 bankruptcy.

Whether you qualify for Chapter 7 bankruptcy first depends on if your income is above or below your state’s median income for a similar household. If you have above median income, your alimony or child support obligations may help reduce your disposable income enough to qualify for Chapter 7. Read on to learn more about how your alimony and child support payments can help you qualify to file for Chapter 7 bankruptcy.

Passing the Chapter 7 Means Test

In order to qualify for Chapter 7 bankruptcy, you must pass the means test. Congress created the means test to disqualify high income debtors with the means to pay back some or all of their unsecured debts from filing for Chapter 7 bankruptcy.

If your average income (for the six month period prior to filing bankruptcy) is below your state’s median income for a household of the same size, you qualify for Chapter 7 bankruptcy and don’t have to complete the entire means test form. If you have above median income, you are required to fill out the rest of the form to determine whether you qualify.

(For comprehensive information on the means test and how it works, see Nolo's articles and Q&As on the means test in Chapter 7 bankruptcy.)

What Happens If Your Income Is Above Median?

If your income is above median, you have to complete the entire Chapter 7 bankruptcy means test form. This means that in addition to your income figures, you must calculate and enter some of your expenses on the form. The means test then uses your income and expenses to calculate your disposable monthly income.

If your disposable monthly income is above a certain threshold, you are not allowed to file for Chapter 7 bankruptcy. If it is below the threshold, then you still qualify for Chapter 7 even though you have above median income.

Alimony and Child Support Obligations Help You Qualify for Chapter 7

When determining your disposable monthly income, the means test uses national and local standards for many living expenses such as rent, food, clothing, utilities, and gas. The amount you can deduct for living expenses based on local standards vary depending on where you live. As a result, you are not allowed to deduct many of your actual expenses on the means test to qualify for Chapter 7.

However, you are allowed to claim your actual expenses for certain obligations on the means test. The most common examples include your taxes, insurance, child care, secured debt payments such as your mortgage, and court ordered payments. Court ordered payments include your domestic support obligations such as alimony and child support.

As a result, if you are required to make large monthly alimony or child support payments, you may qualify for Chapter 7 bankruptcy even if you have above median income. But keep in mind that Chapter 7 doesn’t discharge your obligation to pay alimony or child support (these are considered priority debts unaffected by your bankruptcy). (Learn which debts Chapter 7 bankruptcy cannot discharge.)

Example. Joe is single and makes $70,000 per year. His state’s median income for a single-person household is $48,000. When he completes the means test, his disposable monthly income is determined to be $1,200. Normally, he would not be able to file for Chapter 7. However, if Joe is required to pay $1,500 a month in child support, he can claim that expense on the means test which would reduce his disposable income below zero and allow him to qualify for Chapter 7.

by: , Attorney

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