High earners can still qualify for Chapter 7 bankruptcy
The bankruptcy code was amended in 2005 to try and curb abuse of the system by those who can afford to pay their debts but simply choose not to. Because of these changes, consumers who earn a good living may think that bankruptcy protection is out of their reach, but this is often not the case. People of any income level can file Chapter 13, but the more expansive debt relief that Chapter 7 offers is available only to those that earn a lower wage or that can pass the means test.
How much income is too much for a Chapter 7?
The answer to this question is “it depends.” The first step is to determine whether or not you have to take the means test. If you live alone and make more than $41,333, you'll have to take the means test. If you live in a two person household and earn more than $52,419, you'll have to take the test. For a three person home, the limit to take the means test is $55,855 and for a four person home, it's $67,116. For households of more than four, the limit is $66,147 plus an additional $8,100 for each extra person beyond four.
The limits listed above are as of 2014, but they increase each year to some extent. If you earn less than these limits, you qualify for a Chapter 7. If you earn more, the means test is the next hurdle. In addition, there are standard expenses you can deduct from your income, but if your actual expenses are higher, these may also be allowed. In particular, mortgage payments or car notes of any size are allowed.
How does the means test work for those with higher income?
Passing the means test means that you can demonstrate mathematically that you cannot afford to pay your debts. If you pass, you can file Chapter 7 if you choose. If you don't pass, you may have to file Chapter 13 or find another solution to your debts. Even if you qualify for a Chapter 7, you may want to consider a Chapter 13. Your bankruptcy attorney can advise you on what is best. The first step is to make sure you are only counting the income you must. Only the most recent six months of income count toward your filing.
If you were unemployed recently and then got a high paying job, filing sooner is better so your unemployment compensation (or no compensation) will count for some of your income considered by the means test. From your income, your expenses must be deducted. Your mortgage and car loan amounts, even if they are far greater than the standard amounts, are all allowed. Once all of your expenses are deducted, the test considers whether your remaining disposable income is sufficient to service your debts. If it's not, you should pass the means test.
If you're overwhelmed with debts you can't pay, no matter how much you're earning, bankruptcy may be a good approach to regain your financial footing. Contact the law offices of John T Orcutt to schedule a free consultation to discuss your debts and finances, and to find out if a Raleigh bankruptcy is the right solution for you.