High income earners may still be eligible for Chapter 7 bankruptcy
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As of last year, the median income for North Carolina was $40,736 for a single earner, $51,662 for a two person home, $55,049 for three people and $66,147 for four people. Above four, you add $8,100 for each person in the household. If you're earning above these limits, you may think that you can't file Chapter 7, but that's not true. First, your income over the last six months is what's considered. If you were making good money but it's declined in recent months, you'll have an easier time proving to the court that you're not trying to abuse the bankruptcy system.
You take your last six months worth of income, divide it by six, then multiply it by 12 to get your annual income for bankruptcy purposes. If you are still above the median income for your state, the next step is the means test. On the means test, your income based on the above calculation is the starting point and then you deduct your expenses. Also, the more secured debt you have, the more you'll be able to deduct from your income to get you to pass the means test.
If you have high income, you can still qualify for a Chapter 7 bankruptcy so long as your qualified expenses are also high. Tax obligations for high income earners are higher and can be deducted to reduce your income. Your insurance premiums can also be deducted for health, disability and life insurance policies. These can be significant expenses that can greatly reduce your income calculations for Chapter 7 bankruptcy eligibility.
Another expense deduction that helps higher income earners be eligible for Chapter 7 is secured debt payments. If you have a high mortgage payment and/or high car payments, these can be deducted even if they are higher than is customary for your geographic area. You can take the full amount so long as the loans won't be paid off within the next five years.
If they will be paid off sooner, you can take the total amount you'll pay and divide it by 60 to get the monthly deductible amount. For instance, if you pay $600 for a car loan and have 30 months of payments left, you take $600 x 30 = $18,000, then divide by 60 to get $300 a month deduction.
Other deductions include alimony, child support and child care costs, no matter how much these are. You may also be able to deduct out of pocket health care costs that your insurance doesn't pay if these exceed allowable averages. Charitable contributions you normally make can also be deducted – for instance, if you routinely tithe to your church, you can deduct this expense as well. If you pay costs for the care of an elderly, disabled or terminally ill family member, these costs may also be deducted.
The bottom line is that you won't know if you can qualify for a Chapter 7 unless you try. We wrote yesterday about how Chapter 7 offers more complete debt relief and that's true no matter how much money you make. Your best course of action is to seek the advice of a reputable North Carolina bankruptcy attorney like John T Orcutt. Contact our offices for a free consultation to find out if you can file Chapter 7 and get the most complete debt relief possible.