North Carolina Chapter 7 Means Test: Estimate Qualification and Cost

Chapter 7 Means Test Explanation

The means test is an income test that calculates your average annual income by multiplying your monthly income by twelve. Then, to determine whether you are eligible for Chapter 7 bankruptcy, this yearly income is compared to the North Carolina median income. They get those figures from the Census Bureau. 

If you want to dive deeper into how they calculate your average monthly income for the means test you can review the average monthly income for the North Carolina bankruptcy means test.

Here are a few more specifics:

1. Even if your spouse isn't filing with you, the means test considers your household's total income (unless you are legally separated).
2. The average monthly income from all sources during the six months before filing for bankruptcy will be the information you provide. The average annual income will be calculated by dividing all six months' income by six.
3. The same income should not be mentioned more than once. Put the income from the rental property in one column, for instance, if you and your spouse jointly own it.

North Carolina Chapter 7 Bankruptcy Income Limit

These are North Carolina state's median income limits for different household sizes. Your household income must be less than the amounts below to be eligible for Chapter 7 bankruptcy. The data is arranged by household size and the corresponding median income.

For households with more than 9 individuals, you may be able to add $11,100 for each additional family member

What Is Considered Income?

Not all income is included in this test. For instance, certain disability and social security income are exempt from the bankruptcy means test. There are a couple more types of income that are also not included in the North Carolina means test, like payments for war crime victims and payments related to a national emergency, such as the ongoing COVID-19 situation.

All income categories that the previously mentioned bankruptcy will consider means test are listed below.

1. Salaried income: The amount you get paid each month.
2. Spousal income: Your spouse's income is subject to challenge if you're in a joint case or aren't officially separated.
3. Hourly and overtime pay: You can deduct any overtime you work.
4. Net Rental Income: Any money you make from renting out real estate is included.
5. North Carolina government income: Your state payments are included on this list if you get any.
6. Alimony and child support
7. Royalties, Interest, and Dividends: funds from investments and entrepreneurial ventures
8. Retirement and Pension Income
9. Net business income: If you are the owner and operator of your firm, the money you make from it is included.
10. Payments for annuities
11. Compensation for unemployment
12. Benefits from Worker's Compensation

What Is Considered In Household Size?

Household size as it relates to bankruptcy is any number of financially connected people living in the same residence. This covers immediate family members, dependents, and others who use or contribute to the household's resources. Your roommate might not be considered part of your household size, but typically, your children, whom you claim as dependents on your taxes, may be included.

Now, things can get tricky if you have children who are away at college or are engaged but not yet married. Different bankruptcy jurisdictions in North Carolina might have rules on who can be counted as part of your household. Generally, it usually goes by the saying “heads on beds,” sometimes, the attorney may look at who is filed within your taxes, so be sure to seek counsel.

Timeframe of Filing Another Bankruptcy

If you filed for bankruptcy in the past and are looking to file again, be sure that the appropriate amount of time has passed. Before you file another chapter of bankruptcy, you may have to wait a few years. Check out the timeframe below:

Chapter Filed Earlier, Chapter to be Filed, Time Restriction

• Chapter 13, Chapter 13, 2 years between filing
• Chapter 7, Chapter 13, 4 years between filing
• Chapter 13, Chapter 7, 6 years between filing
• Chapter 7, Chapter 7, 8 years between filing 

North Carolina Above Median Bankruptcy Means Test

You may still be eligible even if you used the bankruptcy means test calculator and could not meet the requirements or if our summary above showed that your household income is higher than the median. You will need to use alternative test forms in this situation. The initial document is referred to as the "Statement of Exemption from Presumption of Abuse Under §707(b)(2)." It facilitates ascertaining whether you are free from the assumption of abuse. This form is called the "Chapter 7 Means Test Calculation." With this one, you can calculate your disposable income by subtracting your allowable monthly expenses from your current monthly income (CMI). A combination of national and North Carolina-related expenses are taken into account.

Disposable income is the money you have left after paying all your expenses. And if your disposable income falls below a certain amount, you might still be eligible for Chapter 7 bankruptcy.

Furthermore, you may still be eligible for Chapter 7 bankruptcy if your disposable income exceeds a specific threshold. You can use the calculator below to estimate the qualifications for the first part of the North Carolina Chapter 7 Means Test.

Allowable deductible expenses

While we're talking about deductible costs, we should also discuss some possible examples of them. The actual expenses that you can deduct on the second part of the bankruptcy mean test include things like:

• Mandatory employment deductions like union dues, retirement plans, and uniforms. 
• Health and disability insurance premiums.
• Income taxes.
• Child care.
• Term life insurance premiums
• Secured debt payments for your car and home 
• Alimony and child support payments
• Charitable contributions, but they're limited to a percentage of your income.

You can deduct other expenses, too, depending on your special circumstances. However, remember that these deductions have limits based on the number of people in your household. You can check out the current national standards to find out the maximum amounts allowed for these expenses. These costs include: 

• Housekeeping supplies
• Clothing expenses
• Food expenses
• Personal care services and products
• Housing and utility expenses
• Transportation expenses
• Out-of-pocket healthcare expenses

What Happens If You Fail the Bankruptcy Means Test?

If you don't pass the Chapter 7 bankruptcy means test, there are other options for you, so don’t worry! Other alternatives include Chapter 13 bankruptcy, debt settlement, debt management, or debt payoff planning.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy in North Carolina is like a wage earner's plan. You make a payment plan to pay back a portion of your unsecured debts, so you will be set on a repayment plan where you can pay back none, some, or all of the debt. Your non-exempt equity and disposable income determine the payment plan. The good news is that you may keep your assets, and there's no need to qualify as long as you're under the debt limits. It stays on your credit report for seven years instead of 10 years with a Chapter 7. The payment plan can last 36 or 60 months, but your plan might be shorter if you're in 100% Chapter 13.

However, with Chapter 13, failing the means test means you do not have enough disposable income to pay the bankruptcy trustee at the end of each month. Because of this, the court cannot grant you a Chapter 13 bankruptcy, which may require sizable monthly payments.

Now, why would someone choose Chapter 13 over Chapter 7 bankruptcy? Some individuals go for Chapter 13 if they have more equity than what's allowed under the North Carolina bankruptcy exemption. It's a way to protect their assets while dealing with their debts. Another reason is that it can help with foreclosures. 

Some individuals prefer Chapter 13 over Chapter 7 bankruptcy if they have more equity than what's allowed under the Ohio bankruptcy exemption; Chapter 13 might be the way to go.

Debt Settlement

Debt settlement is when you or a company negotiate with your creditors to reduce the amount of debt you owe or forgive a portion of what you originally owed. For example, if you had $50,000 in debt, debt settlement might bring that down to a more manageable $25,000.

Debt settlement usually involves a payment plan that can last 12 to 60 months and is often cheaper than Chapter 13 bankruptcy.

When choosing a debt settlement company, you have to be careful. Some companies charge around 25% or more of your enrolled debt. So, make sure you do your research before diving in. You can check out the Consumer Finance Protection Bureau for the latest information on debt settlement programs.

Remember that many debt settlement firms are national, so you don't necessarily have to find one that is local to North Carolina.

Cons of Debt Settlement

This option has some potential negatives, namely that you tend to have to miss a few payments for your creditors to be willing to negotiate. Not only does this put you at risk of being sued by the creditor, but it also impacts your credit score for up to seven years.

Additionally, there is no legal protection, so if a creditor does not agree to a negotiated payment plan, they may sue you. If a creditor sues you, that may go on your credit report. 

There are also potential taxes on the forgiven debt. Whatever debt was forgiven in the settlement may be taxable, and you have to report the canceled debt on your tax return for the year it was canceled. Generally, you may have to report any taxable amount of canceled debt as income. The creditor may send you a 1099-C form you would have to fill out.

Debt Management

Debt management, or credit counseling, is when a company steps in to help you with your debt by negotiating a lower interest rate. Let's say you're stuck with a 22% interest rate on your debt. A debt management company can work to bring that rate down to a more manageable 9%. Most debt management companies are non-profits and help get interest down on credit card debt, but when it comes to unsecured personal loans, they might be unable to help. You'll typically be put on a payment plan when you sign up for a debt management program. This plan can last anywhere from 36 to 60 months. 

The pro of this program is that it may allow you to pay into the principal rather than the increasing interest. So, if you have credit cards with high interest rates and want a less aggressive option, this may be something to look into. 

The downside to this option is that you still have to pay off everything you owe, so it may be a more expensive option. The good news is that it won’t hurt your credit as much as some of the other options may. However, the accounts included in the program will close which may take a small hit to your credit.

Many debt management firms are national, so you don't have to stress about finding a local one if you live in North Carolina.

Summary

Understanding North Carolina's Chapter 7 bankruptcy means tests and income limits may seem challenging, but it can be a helpful first step toward getting financial relief. Notwithstanding its complexity, Chapter 7 is frequently chosen because it is less expensive than other debt-relief options. The means test accounts for various exclusions and compares your household's income to the North Carolina income limit.

Keep trying even if your income exceeds the cutoff. Your expenses and deductions are also considered when determining your eligibility for Chapter 7 bankruptcy. Take great care to think through these sections of the means test so you don't unintentionally guess you are not eligible. Additionally, our calculator can help you get a more precise idea of whether or not you might be qualified.

Additional choices include Chapter 13 bankruptcy, debt settlement, and debt management. Regardless of the means test results, each option offers different considerations and potential solutions, but there is always a way forward.

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