Chaper 7 Income Level Requirements
Waukegan Illinois Bankruptcy Lawyers & Attorneys
Jesse Barrientes: Let’s get back to that point where I told you about – we were talking about the certain income level for different – you know, for an individual filing. And that increases depending upon how many people are in your household.
David Siegel: Yes.
Jesse Barrientes: And what happens if I’m above that level?
David Siegel: If you are making more than the median for a family of your size, then you have to submit to a means test, which is a mathematical calculation based on IRS allowances for food, clothing, housing, transportation to make sure that you don’t have the ability to pay something back to your creditors. In other words, you might be spending way too much on transportation and housing and the means test kind of knocks those numbers down as to what the IRS allows.
Jesse Barrientes: Well, let me ask you this. For example, for one person it’s for food it’s $350 and then for each additional person in the household another $50. Well, I can tell you when I go to Whole Foods I plop down probably $100 a pop, even more depending on what that is. That’s more than once a month there. So maybe I spend six or seven hundred dollars for just one person. What is that going to do?
David Siegel: Right. Well, the IRS allowance for food is going to be a lot less than what you actually spend for food. These allowances come into play when the IRS is collecting on a tax debt so they have no incentive to give you a lot of food budget. They want you to eat as little as possible or have a minimal amount in your budget so that there’s more that they can collect in terms of a tax. So the bankruptcy code is utilizing the same IRS standards that the IRS uses to collect on taxes. So obviously it’s not – steak and lobster, Jesse, is out. You are going on Ramen noodles, mac and cheese, sack of potatoes and some bread. And that’s it. Until you repay your debt.
Jesse Barrientes: Alright. But we’re talking right here for the Chapter 7. I’m trying to discharge my debt.
David Siegel: You are going to discharge your debt, but if you’re spending too much on food and you’re making a lot of money, the court basically says you’re not entitled to a Chapter 7. You’re not going to be able to walk away from your debt because you can pay a little bit back if you budgeted properly under the IRS guideline.
Jesse Barrientes: So that’s basically designed for people who are making a lot of money. So if I was making 150 or 200 whatever, and okay I just want to discharge these debts. Well they’re not going to let me because I have the ability to pay that back.
David Siegel: That is correct. But is something were to happen and you lose your job, you become unemployed and your average income over the six months falls below the median, or even above the median if you pass the means test, then you will get a fresh start. So income is a big factor. But so are your assets and your debts.
Jesse Barrientes: Oh wait a minute. If we’re talking about over a six month period of time, but wait a minute. I might have been making all that money then but I just got canned. I just got fired. And so you’re telling me that I have to wait six months in order to qualify?
David Siegel: That’s right. Because it’s a look back period of six months so if you’re making good money for five months and all of a sudden this most recent month you’re not making money, your average over the six month period is still going to be excessive. So you might have to wait. And that’s what people do. They wait to file sometimes. They time it. You know, they find a way to file under the current law.
Jesse Barrientes: So it’s just a little bit of time, if I don’t have a particular urgency involved.
David Siegel: Right. And as long as you didn’t quit your job and as long as you didn’t fail to get a job when you could. As long as you’re not doing anything fraudulent, then it is permissible to wait out the necessary time period, fall within the means to be able to file, and get a Chapter 7 fresh start in Waukegan.
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