Legal Columns


How Much Debt Do You Need to Have To File Bankruptcy 08/09/2017

One of the first things that a client looking to file bankruptcy asks is, “how much debt do I need to have in order to be able to file bankruptcy?”. Contrary to this line of thought, filing bankruptcy does not depend on the amount of debt that you have. Rather, it depends on your income level.  There is a 2-step process to determine your eligibility to filing a Chapter 7 bankruptcy.

The first step is to compare your income with the median household income of the state that you are living in. In this instance, the current monthly income (CMI) is calculated by combining all your income earned from all sources for the previous six months prior to the month that you will be filing bankruptcy, and then dividing the total figure by six. For example, if you want to file bankruptcy on September 2, you would add all your income earned from the months of February to August that year and dividing the total by six. The income total must also include any contributions made towards living expenses by any members of the household. For example, if your grandfather who lived with you contributed $300 a month towards living expenses, such as buying your children’s clothing items, then that figure must also be included in the total income. If you’re unemployed, any employment benefits must be included in the income amount. After the total household income is determined, this figure is compared to the median household income of the state in which you live. The state median income is different for each state. For example, the median income for a one person household for New Jersey is $62,933, New York is $51,408 and Georgia is $43,274.

Due to issues related to meeting the median household income level threshold, many people find that it is not possible to file bankruptcy. In the case of Mr. Hong, for example, he had three daughters and ran a store selling party supplies. Mr. Hong’s business had a very high sales volume in the winter season when Thanksgiving and Christmas came around. However, the spring and summer seasons always saw lower sales for many years and his credit card usage would increase during those seasons. When he tried to file bankruptcy in April, his income level was higher than the state median income level and therefore was unable to file bankruptcy.

In order to file bankruptcy, we advised Mr. Hong whether he would consider waiting to file bankruptcy in October instead of April. That way, he would be able to use the income earned from March to September when the sales volume was lower. Mr. Hong, however, was quite distressed about his financial debt situation and did not want to wait.

As a result, we proceeded to calculate his income using what you call the “means test”. The means test allows a debtor to deduct certain monthly living expenses, payments and costs. These figures, which may include items such as living expenses, medical expenses, mortgage payments, rent payments, education costs, transportation costs and taxes, are deducted from the gross household income to determine the disposable income. By using the means test, Mr. Hong’s rent payments, children’s education and medical expenses were deducted from his income and he was determined to be eligible to file Chapter 7 bankruptcy.

Mr. Hong was able to gain a fresh start after he received a discharge of all his credit card debts. Even if you are ineligible to file a Chapter 7 bankruptcy, there are various other alternatives to Chapter 7 that you can consider in order to deal with a difficult financial situation caused by a low income and debts.

Many people seem to think that filing bankruptcy reflects irresponsibility or incompetence. However, bankruptcy clients are, in actual fact, very responsible and hardworking individuals who were unlucky enough to be met with a sudden increase in medical expenses due to unexpected family illness, or other financial circumstances that they could not avoid. Bankruptcy is a good opportunity to recover from such dire financial circumstances.

If you are considering filing bankruptcy and have any questions, please email us any time

For more Bankruptcy Columns, please go to

For Bankruptcy Success Stories, please go to