What Income Limits Apply to Chapter 7 vs. Chapter 13 Bankruptcy?

If you’re considering bankruptcy, one of the first questions you probably have is whether you even qualify for the type of relief you want. Many people assume they can simply choose between Chapter 7 and Chapter 13 based on personal preference. In reality, your income plays a major role in determining which chapter is available to you, and the rules behind that determination are more layered than they first appear.

Understanding the basics can help you walk into a conversation with a North Carolina bankruptcy attorney with realistic expectations. But because the analysis involves specific calculations, exceptions, and local court practices, it’s not something most people should try to sort out on their own before filing.

What Is the Means Test and How Does It Affect Your Bankruptcy Options?

The “means test” is the tool bankruptcy law uses to decide whether someone qualifies for Chapter 7 relief. It compares your household income to the median income for a household of your size in North Carolina. If your income falls at or below that median, you generally pass the means test and remain eligible to pursue Chapter 7. Certain sources of income are excluded from the means test, like social security.

If your income exceeds the median, the analysis doesn’t automatically stop there. The means test then looks at your allowable expenses, certain debts, and other deductions to determine whether you have enough disposable income left over to fund a repayment plan. This second stage of the calculation is where many people run into trouble trying to interpret the rules themselves, since the allowed deductions are specific and don’t always match what a household actually spends in real life.

What Income Limits Determine Chapter 7 Eligibility?

Chapter 7 bankruptcy is often called a “liquidation” bankruptcy, and it’s attractive to many filers because it typically resolves in a matter of months rather than years. But eligibility isn’t just about being under the median income threshold. Even filers who pass the means test can face additional scrutiny if the bankruptcy court believes the filing doesn’t reflect a good faith filing because of a large amount of income coming from sources excluded from the means test that could be used to pay creditors. 

Because median income figures are updated periodically and vary depending on household size, relying on outdated or generic numbers you find online can lead to a miscalculation. A miscalculated means test can result in a case being dismissed, converted to Chapter 13, or challenged by the Bankruptcy Administrator, which in North Carolina serves the role that the U.S. Trustee plays in most other states. That kind of setback can cost you time, money, and the fresh start you were hoping for.

How Does Chapter 13 Bankruptcy Work if You Exceed the Income Limits?

If your income is above the median income, Chapter 13 becomes the more likely path. Rather than liquidating assets, Chapter 13 allows you to reorganize your debts into a repayment plan, but determining your actual plan length and payment amount involves its own set of calculations tied to income, allowed expenses, and the type of debts you owe. This is another area where professional guidance makes a meaningful difference in the outcome, since two households with similar incomes can end up with very different repayment obligations depending on factors like secured debt, priority debt, and household composition.

Chapter 13 can also be a useful option if you’re behind on a mortgage or car payment and want to catch up over time while keeping the property, but whether that strategy makes sense for your situation, and how a plan should be structured to support it, is a determination best made with an attorney who has reviewed your full financial picture.

Can Your Household Size and Expenses Change Your Bankruptcy Options?

Household size has a direct effect on the median income figure used in the means test, and expenses factor heavily into whether you pass or fail. Someone supporting a larger household may have more room under the income limits, while someone with a smaller household and the same income might not qualify for Chapter 7 at all.

Beyond household size, the type and amount of your monthly expenses, including certain debts, medical costs, and support obligations, can shift the outcome of your calculation. Because these figures interact with each other in ways that aren’t always intuitive, an accurate assessment usually requires a detailed look at your full financial picture rather than a quick online estimate.

Why Should You Talk to Biggs Law Firm Before Deciding Between Chapter 7 and Chapter 13?

Choosing the wrong path, or filing based on an inaccurate self-assessment of your income eligibility, can create real setbacks at a time when you’re already dealing with financial stress. At Biggs Law Firm, we take the guesswork out of the equation. Our team reviews your income, expenses, and goals to determine which chapter genuinely fits your situation, not just which one seems easier on paper.

The team at Biggs Law Firm brings decades of combined experience helping North Carolina individuals and families move through bankruptcy with clarity and confidence. We believe in bringing order out of chaos, and that starts with an honest, informed conversation about your options.

If you’re unsure whether Chapter 7 or Chapter 13 fits your circumstances, don’t leave it to guesswork. Contact our firm today to schedule a consultation, and let us help you find the path toward a genuine fresh start.