Can I File Bankruptcy Even If I Have A Job?

Of course!  The court does not expect everyone who files bankruptcy to be down, out, and unemployed.  That’s just not how life works; our clients are good hard working people who have simply fallen on hard times. You may have a job and file a bankruptcy and in most cases unless you have signed something stating that the employer must be notified if you file a bankruptcy, your employer wouldn’t have a clue you even filed.

Male on White BackgroundIn your petition you are required to report your income in several different areas.  You will have to show your earnings for the past two years, where you work now and what your expected income going forward as well as what you have earned in the past 6 months prior to filing the bankruptcy. In bankruptcy, your income is calculated based upon a “Means Test”; although there are many other types of income besides employment that are also a factor in the means test.  This tells the court whether or not you qualify for a Chapter 7 bankruptcy or if you will need to file a Chapter 13 bankruptcy based upon your income.

In the event that you file a Chapter 13 bankruptcy your debts are a factor, but your plan payments will be based also largely upon your past 6 months of income.  For example, let’s say that based upon your arrears and debt in the plan, you’re looking at plan payments of $500 per month, BUT based upon your prior 6 months, your income shows that you have an extra $1,000 left over each month.  You would make a payment closer to the $1,000 mark because your prior income states that you can afford it.

Also, in the occurrence that you file a bankruptcy and you have any secured items in which you may wish to keep (such as a house, car, jewelry, furniture, or electronics) you must be able to show that you can afford to make the contractual monthly payments.  The court will not allow you to file a Chapter 7 bankruptcy unemployed and still keep your home unless you can show you are getting income from another source (like family support) to show you can afford the monthly payment.  Bankruptcy court has been enacted to help consumers. Whether you have a job or not does have an impact on your bankruptcy options but you can certainly still file a bankruptcy even if you do not have a job.

How Did Bankruptcy Change With the New Laws in 2005?

Before 2005 it used to be fairly easy and cheap to file bankruptcy. When the bankruptcy laws changed in 2005 the process for filing for bankruptcy became more complicated. Due to the complications of cases fees across the country for filing bankruptcy also went up.

Bankruptcy Questions

One of the main things that changed is the requirement to pass the “means test” in order to be able to qualify to file a Chapter 7 bankruptcy.  Generally speaking, if your average monthly income is less than the states median income, then you will pass the means test. If your average monthly income is more than the states median income, then there are a few other things that are taken into account to determine if you will pass or not. In this case, the means test looks into your income, expenses and the total amount of debt you owe. If that determines you have enough income to pay a certain amount to those creditors each month, then you will fail the means test. This means that you will not qualify to file a Chapter 7 bankruptcy but, instead, you can seek bankruptcy protection under a Chapter 13 bankruptcy.

Another thing that the new laws now require is the debtors have to provide proof of income. This means that they must provide their tax returns for the previous year to the trustee. If the previous years’ taxes have not been filed, they must get filed before the bankruptcy filing can proceed. This goes for both Chapter 7 bankruptcies and Chapter 13 bankruptcies.

The new laws also now require people who file bankruptcy take a credit counseling course and a financial management course.  These must be through government-approved agencies, so make sure to check with your attorney to find out which ones are government-approved.  If these companies suggest a repayment plan or other options, you do not have to follow them. For bankruptcy purposes you only have to be able to show that you have taken the course. A lot of debtors feel that these courses help and give them good information.

These are a few of the main changes that accompanied the bankruptcy law changes in 2005.

Why Does the Means Test Look at My Gross Income Instead of Net Income?

This is a question frequently asked by clients.  You do not have access to your gross income, since a great deal of it goes to pay federal and state taxes, health insurance, life insurance, long and short-term disability, 401(k), etc.  The net income or your take-home pay is what you have available to pay your house payment, utilities, food, clothing, gas, car payments, etc., so shouldn’t this be used to see if you qualify for bankruptcy?

Family Riding Bicycles Together

Unfortunately, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) decided to establish a process for determining whether a person qualified for bankruptcy, specifically a Chapter 7 bankruptcy.  BAPCPA decided it was prudent to conduct a “Means Test” for each potential bankruptcy filer.   As part of the Means Test, it was determined that gross income would be the fairest starting point for all bankruptcy filers.  Although two people may have the same gross income, their net income may vary considerably due to different payroll deductions.  In addition, median household income for each state is based on gross income, so this provided a consistent base for comparison.

So, why is your gross rather than net income considered in the means test used in bankruptcy?  BAPCPA requires it!

Why Do I Have to Include My Spouse’s Income If They Are Not Filing Bankruptcy?

Filing bankruptcy is not as simple as it once was.  You have to meet certain qualifications to determine which bankruptcy you may file.  This is normally done by what is referred to as the Means Test.  The Means Test will determine how your household income compares to the State median income and whether or not you can afford to pay some of your debts back or can qualify for them to be wiped out.

Young Couple in White

The Means Test is based on the household income.  Household includes anyone living in the home who receives income of some sort, which would include your spouse.  Regardless of whether or not they file the bankruptcy with you, the court looks at the combined household income for purposes of the Means Test.  The bankruptcy court basically enacted this law to make sure that you cannot take advantage of creditors by one spouse filing a Chapter 7 bankruptcy to wipe out all of their unsecured debt while the other spouse is making $150,000 a year. Therefore, the household income is used for purposes of the Means Test.

One part of the Means Test deals with your income but another takes into consideration your expenses each month.  Any secured payments, taxes, health insurance, and other “qualified” deductions would be reflected.  If you are in the situation where you may be filing bankruptcy but your spouse is not, then this is where you would reflect any of the deductions that your spouse has as well.  This gives you the opportunity to show the court that while all of your income may be combined, your spouse still has their own debts.  Maybe there are small amounts of credit card payments that are only in your spouse’s name and they want to continue to pay those or a vehicle that is solely in their name only they are obligated to pay.

Unfortunately, the saying, “What’s mine, is yours” goes a long way and the court understands that income and expenses for a household are combined. The court is simply making sure that you cannot “get over” the system.  Including your spouse’s income and expenses in the Means Test is the best way to ensure that a person or couple filing bankruptcy is doing it in the fairest way possible.  We understand this question is, often times, asked because you are worried about your spouse’s credit. Including your spouse’s income in the bankruptcy will not have a negative impact on their credit.

What Happens If We Get A Divorce While in A Chapter 13 Bankruptcy?

Is Child Support or Alimony Included As Income in Bankruptcy?

Father & Daughter on Surfing the InternetBefore you file bankruptcy your attorney will ask you for verification of your last six months of income as a factor to determine Means Test qualification. The Means Test is a household income limit you must fall below according to the number of household occupants in order to qualify for a Chapter 7 bankruptcy.

Child support and alimony are considered income and can greatly impact your ability to qualify for the Means Test. Income from child support or alimony may put you over the Means Test limit causing you to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy.

In addition to having an impact on your Means Test calculation child support and/or alimony will also be considered when determining your monthly budget moving forward. It’s important that you discuss any form of domestic support obligation (child support or alimony) you receive with your attorney before filing your bankruptcy.


Are Food Stamps Considered Income in Bankruptcy Filings?

When you go to file bankruptcy, the court considers your income to determine whether or not you qualify for a Chapter 7 bankruptcy, and in the case of filing a Chapter 13 bankruptcy, to determine the amount of your monthly payments.  Obvious income would be wages earned from employment, self-employment income, social security and child support; but what about government assistance such as food stamps?  In short, food stamps are considered as income for the purposes of a bankruptcy.

Young boy holding the hands of his parents.

The Means Test in a bankruptcy considers most income that you receive: wages, self employment, child support, family support, retirement withdrawals. When you receive food stamps, the monies go straight to a debit card in which you can only use to purchase food in a store that accepts the card.  You cannot get cash back from the card?. However, for the purposes of the Means Test, it is still considered income. Since you can use the governmental assistance to purchase necessities, such as groceries, it is considered to be a part of your monthly income that is calculated under the Means Test. Therefore, it needs to be accurately reflected in both the Means Test and in Schedule I, which is the section that discloses your income to the courts.

What Is Income for Purposes of the Means Test?

Wait a second…I have to qualify to file bankruptcy?  Isn’t it enough that I just simply cannot pay my bills?  How do I determine whether or not I would qualify?  The answer is simple enough: the Means Test.  What is the Means Test you might ask?  The Means Test is a formula used to determine your ability to pay back all of your debts.  This will help determine whether or not you qualify for a Chapter 7 bankruptcy or if you will need to pay back some of your debts and file a Chapter 13 bankruptcy.   The Means Test will take in consideration all of the income coming into the home, as well as some of the expenses that are coming out.

What is considered income for the purpose of the Means Test? Here are the most common types of income that factor into the Means Test:

Types of Means Test Income

W2 Wages/Tips Self Employment Income (this also includes babysitting income)
Family Support Alimony
Income from Rental Properties Child Support
401k / IRA / Life Insurance Withdrawals Trust Accounts
Unemployment Pensions


Almost all income is considered for the purposes of the Means Test. However, there is a small number of sources of income, generally those that derive from the federal Social Security Act, that are not considered for Means Test purposes.

The Means Test regularly changes requirements for each state, currently, North Carolina is as follows:

Household Size: Median Income for Means Test:
1 $37,781
2 $50,630
3 $55,468
4 $67,578


Make too much?  Before you get discouraged, there are “qualified” deductions that help bring down that means.  Some qualified deductions are: taxes, medical insurance, life insurance premiums, mandatory deductions from you pay, charitable contributions, court ordered payments, and out of pocket co-pays and prescriptions.

You will need to sit down with your bankruptcy attorney and let them run a complete Means Test on you to determine whether or not you qualify at this time.  Looking at the past six months of pay stubs or a profit and loss will help an attorney determine whether or not you are able to pass the Means Test.


Who Is Considered A Dependent In Bankruptcy?

Boy Holding HandsA dependent is an individual who requires and is actually receiving financial support from the debtor on a regular basis. This is usually children, grandchildren or an elderly family member. Generally, if you provide more than half of that person?s support, that person is considered your dependent.

When it comes to bankruptcy, the rules relating to whether or not a person can be claimed as your dependent are complex. There are various opinions on this topic and often times are determined on a case to case basis. Some Courts determine who is a dependent on the basis of who qualifies under the IRS standards while others use different standards. Most of the time, if they are considered dependents on your taxes the the bankruptcy courts will also consider them dependents.

The number of dependents you have is important in bankruptcy filings because it plays an important role in your Means Test calculations. Properly determining who is or is not a dependent may mean the difference between filing a Chapter 7 bankruptcy or having to file a Chapter 13 bankruptcy.

If you are uncertain as to whether an individual qualifies as your dependent, your best bet would be to consult with your bankruptcy attorney.

Bankruptcy Versus Debt Consolidation: The Pros and Cons

Bankruptcy QuestionsDo your debts have the best of you?  Once you make the decision do something about it, you usually contemplate debt consolidation or bankruptcy.  They are both valid options for you to consider. Below we have explored some of the benefits and drawbacks of each.

Debt consolidation can take many forms, but for this blog we will look specifically at companies that take some or all of your debts and negotiate a settlement with your creditors.  This agreement allows you to make a single monthly payment to the debt consolidation company who then distributes payments to your creditors.  The negotiated settlement percentage is often agreed to in advance between the debt consolidation company and your creditors.  The debt consolidation company then makes your monthly payment to the creditors.  This sounds great, so are you ready to move forward with debt consolidation?  We suggest you closely look at the pros and cons.


You make one single payment each month for your debts to the debt consolidation company.

You may lower your overall monthly payment.

You can avoid bankruptcy.


The debt consolidation company is unable to negotiate with all of your creditors leaving you to negotiate with some creditors on your own.

Creditors report negatively on your credit since you are not paying the full amount owed each month (this is frustrating since they agreed to the reduced amount).

The debt consolidation company may not pay your creditors timely, and sometimes not at all, each month resulting in derogatory impact on your credit.  This can stay on your credit report for seven years.

A surprise lawsuit is served on you by the Sheriff’s office when you discover one or more creditors have not been paid as part of the debt consolidation.

Creditor sends a 1099C to you for the forgiven debt, a/k/a taxable income, resulting in taxes owed to the Internal Revenue Service.

Your monthly payment is only slightly lower than before entering debt consolidation.

Duncan Law, PLLC believes that debt consolidation is a viable and appropriate approach for some individuals.  However, be careful who you choose since there are scams and questionable companies marketing as debt consolidation or credit counseling organizations.  We recommend you contact the Better Business Bureau or your local United Way to see who they recommend.

Bankruptcy is the legal approach to consolidating or eliminating your debts.  Depending on your income and your personal situation, you may want or need to file a Chapter 13 bankruptcy which consolidates your debts.  Similar to debt consolidation, you pay a percentage of your unsecured debts (credit cards, medical bills, personal loans, foreclosures, repossessions, etc.) back over a period of time.  The percentage paid back to unsecured creditors varies by client but is usually between 10% – 20%.  In some situations, Chapter 7 bankruptcy is the correct approach and it will completely eliminate debts on credit cards, medical bills, personal loans, foreclosures, repossessions, etc.  So you think bankruptcy is the best approach?  Again, we suggest you look at the pros and cons.


In a Chapter 13 bankruptcy, you make a single payment each month to a Trustee that makes the payments on your behalf.  The Trustee is appointed by the federal government and payment made by the Trustee are scrutinized and audited.  This payment plan is a minimum of three years and a maximum of five years depending on your specific situation.

A Chapter 7 bankruptcy will eliminate unsecured debts while allowing you to retain your home and car in most cases.

Once the bankruptcy is filed, a “stay” in enacted which keeps your creditors from suing you, repossessing or foreclosing on your property, or taking further legal action against you.

You are not taxed by the Internal Revenue Service on the debt forgiven in bankruptcy.

You are able to obtain a fresh start once the bankruptcy is complete, and obtaining credit after bankruptcy is much easier than you would expect.


Not everyone will qualify for a Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy will be on your credit report for seven years from the date of filing in a Chapter 13 bankruptcy and ten years from the date of filing in a Chapter 7 bankruptcy.

In a Chapter 13 bankruptcy, you must obtain approval from the bankruptcy court for the purchase of cars, homes or other items that cause you to incur additional debt.

Bankruptcy is viable option when a fresh start is needed.  Depending on the individual’s circumstances, bankruptcy can provide a repayment plan, a Chapter 13, or a debt elimination plan, a Chapter 7.  If you are considering bankruptcy, please contact Duncan Law, PLLC to discuss your options.