Can I Declare Bankruptcy Even with a High-Paying Job?
Yes. High-income earners have a few bankruptcy options to consider. Even if you are employed, have a high-paying job, or multiple sources of income, you may be eligible for Chapter 7 or Chapter 13. The amount of money you make will play a role in determining which type of bankruptcy you qualify for and how much debt you will pay back.
Bankruptcy Options for High-Income Earners
Your job status and income will help determine if you can file for Chapter 7 bankruptcy. The benefit is that you can cancel out qualifying debt and complete the process in just 3-4 months. Because it’s more difficult for those with a high-paying job to qualify for Chapter 7, many turn to Chapter 13 for debt relief. This option takes longer to complete, but helps to restructure debt owed and set up a workable payment plan. Once the repayment period is completed, in a few years, nonpriority unsecured debt can be discharged.
What is the best bankruptcy option for you? Do you qualify for Chapter 7 or Chapter 13 despite your relatively high earning power? Let’s try to answer these questions.
Qualifying for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is preferred by some debtors. Though it requires the liquidation of many assets, the process is faster. Plus, in Chapter 7 unsecured debt can be wiped away in just a few months, while in Chapter 13 the debtor must pay on this debt throughout the 3 to 5-year repayment plan.
Is there an Income Limit for Filing Chapter 7?
Yes. For high-income earners, however, it may be challenging to meet the requirements for filing for Chapter 7. Since Bankruptcy Abuse Prevention & Consumer Protection Act (BAPCPA) was passed in 2005, it has become more difficult for individuals with a high income to qualify for Chapter 7. The goal of this federal act is to require those with sufficient means to repay more of their debt through a Chapter 13 repayment plan.
To understand which type of bankruptcy you can file for, your lawyer will calculate the ‘means test.’ First, this standard calculation compares your current monthly income to the median income, for families of the same size, in your state. Next, your attorney will compare your regular expenses and the amount of accumulated debt. Payments toward secured debt – including mortgage and car payments – are usually subtracted from the expendable income remaining. If your income is high and your debt is low, according to the means test, you may be over the limit for Chapter 7 qualification.
Are there Situations that Increase the Possibility of Qualifying for Chapter 7?
Even debtors with high-paying jobs can qualify for Chapter 7 bankruptcy. Here are a few situations which may make this a feasible option for you:
- The median income in your state is high.
- You have multiple dependents.
- Your debts are related to a business, including tax debt, business credit and personal loans used for office assets and investments.
- You are a veteran or a member of the military or National Guard.
- Current payments on secured debt (like a mortgage and car loan) are high compared to your income.
- A significant amount of the debt accumulated is secured (like a mortgage and car loan).
- A significant amount of the debt owed is priority (like child support or alimony).
Qualifying for Chapter 13 Bankruptcy
For those who don’t pass the means test, Chapter 13 is the best option. In this form of bankruptcy, your debt will be prioritized by a trustee and a structured payment plan will be established. Once your income and expenses are calculated, the program requires that you make your ‘best effort’ to repay the debt owed.
What Income Must Go Towards the Chapter 13 Payment Plan?
Your earnings from your job and other sources of money will be calculated by the bankruptcy trustee. Payments are meant to be covered by regular and reliable income, such as:
- Your monthly wages or regular job earnings,
- Business income,
- Social Security or disability benefits,
- Other government aid,
- Pension, retirement or annuity income,
- Child support or alimony.
Is there an Income Limit for Filing Chapter 13 Bankruptcy?
No. There is no means test in order to file for this type of bankruptcy. In fact, only those with a relatively high income can qualify for chapter 13. There are other limits set for qualifying, however. If the amount of secured debt is over $1,184,200 or the amount of unsecured debt is over $394,725, you will not meet the requirements for filing.
Why is my Income Important in Chapter 13 Bankruptcy?
Bankruptcy laws don’t prohibit someone with a high earning power from declaring Chapter 13 bankruptcy. But your income will influence the duration of your payment plan set up by the trustee. In the court’s eyes, those earning more than the current state median are able to repay a large amount of the debt owed. For that reason, those with higher incomes will likely be required to stick to the repayment plan for the full five years. Once the Chapter 13 repayment plan is complete, the remaining nonpriority unsecured debt will be discharged.
Bankruptcy May Be Your Best Option
If you’re struggling with debt and the bills are piling up, bankruptcy may be the best way for you to get a fresh start. Schedule a consultation with an experienced legal team which can the options available to you. Get professional guidance in finding the best solution to your financial situation. Contact Amourgis & Associates at 800-444-1967.