Is making too much money to declare bankruptcy possible? Even when overburdened with high debts, some individuals may feel as though their household income is too high to declare bankruptcy, but this usually is not the case. As a high-income bankruptcy filer, you need to have the right information before you decide how to proceed. Read on to learn more.
Understanding the Means Test
When declaring bankruptcy, you will undergo a means test. A means test will go over your household debt and income, to determine whether paying off your debts with the income that you have is possible.
If you would have enough money left over after your bills to be above poverty level, then the court will recommend Chapter 13 bankruptcy. Chapter 13 bankruptcy will restructure but not eliminate your debts and will not dissolve your assets.
If you would be below poverty level when paying all of your bills, the court will recommend Chapter 7 bankruptcy. This is possible even if you have high income.
Ensuring Good Faith for Expenses
When calculating expenses, you need to calculate these expenses in good faith. In other words, you cannot juggle the numbers so your expenses appear that you spend more than you truly need to.
Things such as expensive rent or an expensive mortgage may make sense if you are in a high-income area and you need to stay in that area for work. However, the court may not accept your paying far above market rent for a particularly luxurious place.
The court will generally know what the average costs are in your area and will make adjustments regarding this. Consequently, if you spend far above your means and if you could pay your debt off if you stopped doing so, then you may fail the means test.
An example might be spending thousands of dollars on a private school for your children. This one expense could drive you into the poverty level but is not allowed in good faith under the means test.
Filing Chapter 13 Bankruptcy May Be Better
High-income earners also often have significant assets, so Chapter 13 bankruptcy may actually be better for a high-income earner even if the income earner does qualify for Chapter 7. Chapter 13 bankruptcy is for those who can potentially pay their debts but need to have them restructured in order to do so. In many ways, Chapter 13 bankruptcy is similar to a loan consolidation or loan refinancing process.
In a Chapter 13 bankruptcy, you will keep all of your assets. You can catch up on mortgage payments, pay off credit cards, and get current on your car loan through a structured payment plan. This bankruptcy will not wipe out your debt. You will have to pay it back during a reasonable timeframe.
If you qualify for a Chapter 13 bankruptcy, you cannot have a Chapter 7 bankruptcy, but the benefits of bankruptcy are still there.
Dealing With Unequal Levels of Debt
If one individual is a high-income earner and the other spouse is the one who holds all the debts, often only the one spouse goes through the process of bankruptcy. For this to be possible, however, the debt needs to truly be the other spouse's, such as debt they accrued before marriage.
Nearly anyone can file bankruptcy if their debts exceed their income. However, high-income earners have some additional considerations and may want to consult with a bankruptcy attorney before moving forward. For more information about your bankruptcy options, contact Attorney Patrick T. Smith. We are happy to answer your questions and go over the entire bankruptcy process with you.