With the introduction of the Bankruptcy Abuse Prevention and Consumer Protection Act, the amount of money you make matters more than ever when filing for bankruptcy. The changes to the bankruptcy law require that every debtor who files for bankruptcy disclose his income when filing bankruptcy. Your income determines the chapter of bankruptcy you can file, and working overtime can affect your income level.
Bankruptcy Abuse Prevention and Consumer Protection Act
Congress changed the existing bankruptcy law to curb the increasing amount of bankruptcy filings taking place within the United States. Creditors lobbied for Congress to enact these changes because of their perceived notions that people who could afford to pay their debts were filing for Chapter 7 bankruptcy. These people had their unsecured debt, such as credit card debt, wiped out. Many would end up in a better financial position than many other honest debtors who elected to pay their debts rather than file for bankruptcy. The credit card industry believed that many of the debtors had the ability to repay their debts, and they wanted to ensure that those debtors who could pay their debts could not take the easy way out by filing for Chapter 7 bankruptcy.
As a result of the changes in bankruptcy law, you must pass a means test before you can file for Chapter 7 bankruptcy. The means test takes your income into account, and if you make over a certain amount of money, you cannot have your debts wiped out via Chapter 7 bankruptcy. If you file for bankruptcy at all, you must file under Chapter 13. Under Chapter 13 bankruptcy, you will repay your debts over a period of three or five years.
The amount of income you bring in will be the deciding factor in whether you can file for Chapter 7 bankruptcy. The more money you make, the less likely you will be to qualify for Chapter 7 bankruptcy. Therefore, if you work overtime, making 1.5 times what you make during regular hours, this extra income could push you over the threshold that would qualify you for Chapter 7 bankruptcy.
Take this example: You make $10 per hour at 40 hours per week. Your weekly income is $400 per week. Add overtime of 20 hours per week to your weekly income. That gives you $700 per week. Multiply each of the numbers by 52 weeks to come up with an estimated yearly income. At $400 per week, your yearly income would be $20,800, while at $700 per week, your yearly income would be $36,400. If you reside in a state like Arkansas where the median family income for a single earner is $32,834 at the time of publication, working overtime could possibly disqualify you from filing for Chapter 7 bankruptcy.