Can You Work & File Chapter 7?

by Beverly Bird

Being unemployed is not a condition of filing for bankruptcy, although you might find it easier to qualify for Chapter 7 if you don't have a job. Working won't disqualify you, but if your job pays well, it could mean the difference between being able to file for Chapter 7 or being forced to file for Chapter 13 instead.

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Current Monthly Income

Your eligibility to file for Chapter 7 begins with your current monthly income -- your CMI. This is the average of what you've earned per month over the last six months. If you file for bankruptcy in July, your CMI is based on your income from January through June. If you're working, and if you earned $4,000 each month from January through June, your CMI is $4,000. If you lose your job, you might earn $4,000 each for January, February and March, but nothing for April, May and June. Your CMI would drop to $2,000.

The Means Test

For Chapter 7 purposes, the lower your CMI is, the better. If it's less than the median income for a family of your size in your state, you don't have to take the means test to qualify. If you do have to take the means test, you must deduct your reasonable living expenses from your CMI. If you're left with approximately $200 a month or more, you must file for Chapter 13 instead, entering into a court-supervised plan to repay your debts with this extra money. You must have a regular source of income to qualify for Chapter 13.