If you are considering filing bankruptcy, but have a higher-than-average income, or a higher-than-average debt load, you have some very serious decisions to make. As you decide whether filing bankruptcy is the right decision for you, there are some factors to consider that affect you and may not affect the general public.
First, you will have to determine if you can file Chapter 7 bankruptcy protection. The newest bankruptcy laws make it more difficult for debtors who have a high income to file this form of bankruptcy, which virtually wipes out your debts. However, it may not be impossible, depending on where you live and exactly how much of your income the courts consider as income.
“High-income” is defined differently by almost everyone. Some people will consider an income of $100,000 a year to be high, yet in states with a high cost of living, this may well pass the means test. The first consideration to make is whether or not you can pass the means test and file Chapter 7.
There are instances where an individual can file Chapter 7, even with an income over the median income. For instance, if the debtor can prove that they are filing in good faith and that all of the expenses are reasonable and necessary, that debtor may be allowed to file Chapter 7, even with a higher income. Similarly, if the debt load is in proportion to the high income, it may be possible for debtors to file Chapter 7, provided the debts were taken on in good faith.
There are variables as well that affect the median income level. For instance, if you have a large family, your means test amount will be much higher than a married couple with no children. The more dependents you have, the more you are allowed to make to file Chapter 7. Other variables that may play a role include tax arrears, mortgage arrears, and large or multiple mortgages.
In addition to determining whether or not you qualify to file Chapter 7 bankruptcy, if you have a high net worth, you may be concerned about the potential loss of assets that traditional income earners may not have to consider. For instance, the average wage earner is not going to have a luxury residence to worry about, but you might. Some trustees may argue that it is unreasonable for you to keep that luxury home while not paying your creditors. Even if the equity amount falls within the bankruptcy exemptions and you plan to maintain your mortgage payments, the trustee can still object.
Similarly, if you own rental property, there can be some unique factors to consider. If the income does not exceed the expenses, which cuts down on disposable income you could be using to pay your creditors. So, because of this, you could lose rental properties, and the income from them, in a bankruptcy case.
Many of these factors affect individuals differently based on their unique circumstances. This is why debtors with higher net incomes often consider choosing an attorney to help them with the process of filing bankruptcy. But whether you file with an attorney or on your own, remember that there are different considerations to make when your income is high.
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