In order to determine if you can take advantage of the benefits and protections of Chapter 7 bankruptcy, your attorney must first determine two things. The first is that your income must be below the median income level for your state for your household size. This is the “median income” test.
The median income levels as of November 11, 2011 for Colorado are:
Household size 1 – $47,361
Household size 2 – $62,431
Household size 3 – $69,252
Household size 4 – $79,905
For households with more than four, simply add $7,500 for each person in excess of four.
The second “test” you must pass, even if your income is below the median income level, is that your monthly income must not exceed your monthly income by too much. This is the “disposable income” test.
This test deducts expenses from your income to determine how much you can pay your unsecured creditors over the next five years:
- If you can pay at least $11,725 ($195.42 per month), you can’t file for Chapter 7.
- If you can pay at least $7,025 ( about $117.08 per month) and that is at least 25% of what you currently owe your unsecured creditors, you can’t file for Chapter 7.
- If your disposable income is less than $117.00 per month, you can file for Chapter 7.
Certain deductions are standard allowances based on the number of vehicles you operate, the number of people in your household, and the cost of living in a particular area.
In addition, to these standard deductions, you can also deduct the full amount of certain actual expenses such as mortgage and vehicle loan payments.