Can You Make Too Much Money to File for Chapter 13 Bankruptcy?

Can You Make Too Much Money to File for Chapter 13 Bankruptcy?

September 11, 2020

Which type of bankruptcy you can file depends on a lot of things, including your income and assets. Some people qualify for both Chapter 7 and Chapter 13 bankruptcy, but find that one option is clearly better than the other. Others may want to file for Chapter 7—where your assets are liquidated and used to pay creditors—but can’t pass the means test, so filing for Chapter 13 bankruptcy in The Woodlands, TX is their only option.

Here’s the good news: you generally can’t make too much money to file for Chapter 13. (There are always exceptions, however, which is why you need to talk to a skilled attorney before filing.) Here’s what you need to know about filing for bankruptcy.

Chapter 7 and the means test

Chapter 7 bankruptcy is designed to help lower-income and debt-laden people—who will never be able to pay their debts off—get some relief from their creditors. Their assets are liquidated, and the proceeds are used to pay off creditors, usually at a highly discounted rate. In order to qualify for Chapter 7, you must pass the means test.

The Chapter 7 bankruptcy means test evaluates whether you make more than the median income in your state, then looks at how much discretionary income you have after the bills paid. If you have any discretionary income left, you’ll need to file for Chapter 13 bankruptcy.

Being a high earner doesn’t necessarily preclude you from filing for Chapter 7. It doesn’t matter whether you make $50,000 or $500,000—if you don’t have discretionary income after paying your necessary bills, you’ll be allowed to file for Chapter 7.

Chapter 13 bankruptcy

If you have any discretionary income after paying your bills, you’ll need to file for Chapter 13 bankruptcy. This type of bankruptcy, instead of forcing you to liquidate all your non-essential assets, requires you to come up with a three- to five-year payment plan. This payment plan allows you to pay your creditors what is usually a reduced amount. If you can keep up with your monthly payments plus usual payments (such as mortgage, car and more), you’ll be able to retain your assets.

Filing for Chapter 13 bankruptcy in The Woodlands, TX is often the default choice for higher earners, but it doesn’t have to be. You should make sure you talk to a bankruptcy attorney to verify whether it’s the smartest option for your situation. In some cases, your situation might require you to file for Chapter 13, but in others, it can be a strategic way to hold onto at least some of your assets. Luckily, unless you’re hoarding wealth secretly, you should be able to find a bankruptcy proceeding that works for your specific situation.

Are you thinking about filing for bankruptcy? If you qualify, James R. Jones, Attorney at Law can help. Reach out to our office today to learn more about how bankruptcy will affect you, and to schedule a consultation. We look forward to working with you soon.

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