Income & Bankruptcy
No matter how much you earn, you still may qualify for Bankruptcy to get creditors to stop harassing you. While Chapter 7 Bankruptcies have a cap on how much money you can make in order to file, there are some strategic exemptions. Otherwise, Chapter 13 Bankruptcies are available to those who make too much money to file a Chapter 7 case. Here's a look at how high income earners are treated in bankruptcy.
Under the Bankruptcy Code, anyone who makes more than the median income for a family of their size located in their state must complete an extra form called the means test to determine if they qualify for Chapter 7 bankruptcy. If an individual's means test indicate that they don’t have any extra income after all of their bills, taxes, insurance premiums, and qualified monthly expenses are paid, that Debtor can file a Chapter 7 bankruptcy. However, debtors whose means test results show that they have some money left after their bills are paid will be required to file Chapter 13 bankruptcy. This means that even a high income earner who makes six figures could qualify for Chapter 7 bankruptcy while someone earning less might not, depending on their means test results.
High income earners who file Chapter 7 bankruptcy will need to prove that they’re filing their case in good faith. Expenses must be reasonable, fair, and necessary. You will not be allowed to pay for luxury goods and services while failing to repay your unsecured creditors. For example, it's not likely that a high income earner will be allowed to pay for their adult child’s education while discharging their credit cards in bankruptcy.
Finally, individuals whose debts are primarily derived from business ventures may be exempt from completing the means test. In some jurisdictions, student loans even qualify as business debts! However, even though an individual may qualify for a Chapter 7 because their debts are primarily business related, they still must not have excess income each month that would otherwise be able to pay back their creditors. Like before, monthly expenses cannot include luxury goods, and must only be to support the debtors and their dependents.
If you’re a high income earner, talk to an attorney about which bankruptcy chapter may be a good choice for you. Other factors may affect which Chapter you file.