Massachusetts residents who face large debts may consider Chapter 7 bankruptcy. This process can erase many unsecured debts, but income affects who can qualify. Federal law uses a means test to review income and certain expenses. There is no single income limit that applies to everyone.
How the means test decides eligibility
The means test compares a person’s annualized income with the Massachusetts median for the same household size. The limits change over time, so the filing date matters. If income falls at or below the state median, the person generally does not need to complete the added means-test calculation. Other legal rules still apply. Those earning more than the median may still qualify. The test deducts allowed expenses and certain debt payments to check for a presumption of abuse. It does not force a person to file Chapter 13.
What income counts toward the limit
The means test typically calculates your average qualifying income over a six-month period ending on the last day of the month immediately preceding your filing month. Federal law calls this current monthly income.
Common sources may include:
- Wages: Pay from regular employment.
- Business income: Earnings after allowed business expenses.
- Rental income: Rental receipts after allowed operating costs.
- Regular contributions: Money received to help cover household expenses.
- Spousal income: Certain income from a spouse who is not filing.
The calculation follows federal rules and does not include every source of money. Under 11 U.S.C. § 101(10A), Social Security benefits are excluded. A married person filing alone may need to report a spouse’s income. However, a marital adjustment may exclude qualifying amounts not used for household expenses or dependents.
Understanding options for debt relief
Income above the Massachusetts median does not always prevent Chapter 7 relief. Allowed housing costs, transportation expenses and certain debt payments may affect the result. A person should review the current median-income table, recent pay records and household expenses before filing. The means test may create a presumption of abuse, but that does not always end the case. A bankruptcy attorney can review the figures, explain available deductions and assess whether Chapter 7 or another debt relief option may fit the person’s financial needs.