Exploring Civil Case Proceedings

Do You Make Too Much Money To Declare Bankruptcy?

14 February 2018 by Becky Freeman

Many people suffering from financial problems never even consider that they may not be able to actually file for bankruptcy if they make too much money. After all, no matter how much money you make, you can still get in over your head with spending and debt. The debt relief that a bankruptcy offers can be quick and bring a welcoming peace. No more collection calls or letters, temporary relief from eviction or foreclosure and more can follow if you are allowed to file. Read on for some valuable information about how your income could affect your ability to file and some possible solutions.

Your income vs. median income

All states have a median income, which represents what the majority of residents make each year. As you might imagine, the number varies widely depending on things like salaries and the cost of living in that state. While this number may seem arbitrary, if your income exceeds the median in your state you may have to take some further steps to gain access to the debt relief that a bankruptcy might bring. It wasn't always this way; previously income was not a factor. New bankruptcy rules meant to curb the increase in filings, however, now mean that the wealthy can no longer file.

Consider filing a chapter 13 instead of chapter 7 bankruptcy

If your income is far too high for filing a chapter 7, a chapter 13 filing could be the answer for you. Your income is not considered for this form of consumer bankruptcy, and it still brings relief from debt collectors and fears of loss of property. A chapter 13 is known as a debt reorganization plan, and it usually means a negotiation with your creditors to pay a reduced amount or to stretch the payments out over more time.

Passing the test

For bankruptcy purposes, your income is checked via something known as the means test. In other words, you cannot file for bankruptcy (chapter7) if you already have the "means" to pay your debt, and this is checked by your income and a number of other factors. You can use deductions to qualify if you have enough, however. There are several expenses you can deduct from your income, such as child care expenses, medical expenses and more. You should know that the means test only looks at your most recent 6 months of income, so if you have suffered from a recent drop you might be able to try again in a few months.

Speak to a bankruptcy lawyer, like McElrath Law, and get started on your fresh financial start as soon as possible.

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