Your income affects your eligibility for a Chapter 7 bankruptcy discharge—the order that wipes out obligations such as credit card balances, medical bills, and personal loans. Naturally, the higher your income, the more difficult it might be for you to qualify for a discharge (you must pass the Chapter 7 means test). Although your veterans' benefits will count as income when filing for Chapter 7 bankruptcy, if you are a disabled veteran, you might be exempt from the means test altogether.
Almost anyone can file for Chapter 7 bankruptcy. However, to receive a discharge of your qualifying debts, you must meet income requirements or qualify for an exemption from the means test. If you’re like most people, your income must be low enough to pass the Chapter 7 means test—but you’ll want to check to see if you’re exempt, too.
The lower your income, the easier it is to qualify for Chapter 7 bankruptcy. If your monthly income is less than or equal to the median income in your state, you’re eligible (assuming you meet other Chapter 7 eligibility requirements, such as the rule limiting how often you can file a Chapter 7 bankruptcy and receive a discharge.) If your income is higher than the state median, you’ll do calculations to determine how much disposable income remains after deducting certain expenses from your income.
Debtors must include most sources of income on the means test. The exception is Social Security benefits, and in some states, unemployment compensation—you won’t need to include these types.
By contrast, veterans’ benefits aren’t exempt and must be figured into the means test calculations. Keep in mind that payments for many different things can be part of veterans’ benefits, such as payments for healthcare, living expenses, and disability.
For more details, see "Current Monthly Income" for the Bankruptcy Means Test.
If you are a disabled veteran, you might not have to take the means test to qualify for Chapter 7 bankruptcy. Veterans who can meet the following two criteria will be eligible for exempt status:
A veteran is considered disabled after receiving one of the following:
If you believe that you’re exempt, you’ll fill out the official bankruptcy form entitled Statement of Exemption from Presumption of Abuse Under §707(b)(2). On it, you’ll find additional instructions that could help you determine your eligibility.
Other exemptions to the means test exist. For instance, you might be exempt if your debts are primarily business debts.