When most people think of bankruptcy, they think of Chapter 7 bankruptcy, which is also known as liquidation bankruptcy. It gets that name from being the most aggressive and straightforward form of personal bankruptcy. Via Chapter 7 proceedings, people struggling with debt can ask the courts to step in and discharge their unsecured debt without an obligation to repay creditors first.
Obviously, the potential exists in a system that forgives most debts for abuses by individuals who could go on a spending spree with no intention of ever paying off their creditors. Widespread abuse of bankruptcy would make it much harder for people to obtain unsecured credit due to the financial risk to lenders.
To protect financial companies from fraud related to bankruptcy, federal bankruptcy law mandates that each person filing for Chapter 7 bankruptcy must pass a state means test. Understanding this means test can help you determine whether Chapter 7 bankruptcy is an option.
The means test looks at the median state income
The average wage and cost of living varies from state to state, which is why the means test also varies. New Hampshire has one of the highest median incomes in the entire United States. That means that you could be making substantially more money than someone living in the state with a low median income like Arkansas.
To pass the New Hampshire means test after Nov. 1, 2019, your adjusted income will need to be below $65,400 if you file as a single person. For a family of two, the maximum income increases to $78,998. Families of three can have a household income of $100,278, while families of four must have a median income of below $120,342.
If you seem close to qualifying, talking to an attorney could help
If your income leaves you just over the median income for the size of your family, it may still be possible for you to qualify for Chapter 7 bankruptcy in New Hampshire. That’s because the means test is more complex than just comparing your annual income to the state median.
You aren’t comparing your gross income to the state median. Instead, the comparison involves an adjusted income figure that corrects for certain unavoidable expenses such as housing costs. Those who are close to the cut-off limit for their household size could still qualify for Chapter 7 bankruptcy.
While it is possible to file for bankruptcy without legal representation, an attorney can help you with the process of completing the means test to establish your adjusted income and determine whether you qualify for Chapter 7 bankruptcy. The good news is that even if you don’t qualify for Chapter 7 protections, you can likely still file Chapter 13 bankruptcy.