Time heals all wounds – even bad debt. Credit reports are important but beware the “credit score.” Although it is debatable that time, does in fact, heal all wounds. It is certain that time heals bad debt wounds in your credit history. Debt hiccups happen to even the most financially responsible people and are NOT a reflection of who we are. For example, I was sitting in Bankruptcy Court several years ago and the Judge took the bench after returning from a month-long trip. Upon returning and checking the mail, the Judge found a late payment notice from the mortgage…
Do I make too much money to file for bankruptcy?
It should come as no surprise that income matters when considering bankruptcy. Yes, it is possible to make too much money to file bankruptcy. Every bankruptcy filing must be made in “good faith” and if your income is high then the Court could determine the case was filed in “bad faith” and you might not receive a bankruptcy discharge. However, as we detail below, there are many situations where you could file for bankruptcy even though you have a high income.
First of all, the type of bankruptcy relief you need can affect this income analysis. In Chapter 7 bankruptcy, which is the most common type of bankruptcy filed, your income is vital to determine whether the Court will grant you a discharge. However, in Chapter 13 bankruptcy – the repayment type of bankruptcy – your income is much less important. Some people really need the help a Chapter 13 provides (such as asset protection, stopping foreclosures on your home, repaying tax debt) and thus the income hurdle is not important.
For someone considering Chapter 7 bankruptcy, how much is too much income to file for bankruptcy? The answer to that question is based on your household size and your state of residence. If your household income is greater than the state median income, then you may face an income hurdle in filing for Chapter 7 bankruptcy. The table below lists the current (as of April 2019) median income for various household sizes in Oregon.
|1 person||2 people||3 people||4 people||5 people|
For bankruptcy purposes, your “income” is based on gross income (before taxes) and includes things that we may not commonly think of as income such as (a) rent received from a roommate, (b) support, (c) tips and commissions, (d) employer provided allowances, and (e) regular gifts from family members to name just a few. Like most things in the law the “devil is in the details” so the assistance of an experienced bankruptcy attorney (like us!) cannot be overstated.
As an example, let’s assume Barbara lives alone and has a good salary of $4,700 per month before taxes and no other regular source of income. Barbara’s annual income would be $56,400 and thus she would NOT make too much money to file for Chapter 7 bankruptcy. Now let’s change it up and add in that Barbara receives each month a car allowance from her employer of $200 per month. Now Barbara’s annualized “income” for bankruptcy purposes would be $58,800 and she MIGHT make too much money to file for Chapter 7 bankruptcy.
Notice I said “might” make too much money? That’s because in some fact patterns, even people whose income is too high as compared to the above table, can still file a Chapter 7 bankruptcy. You see, the income is just the start of the analysis. If the income is too high, then we have to look at the type of debt a person has. The bankruptcy system favors secured debt (like home mortgages or car loans) and favors priority debt (like support obligations or tax debt). We have done many (as in hundred’s) of bankruptcy cases for people whose income is above the median level but we still get them through a Chapter 7. Once your income moves above the median, the analysis gets complex and convoluted with many traps for the unwary. If you are considering bankruptcy and your income is above the median dollar figure listed above, then I strongly suggest you retain an experienced bankruptcy attorney to assist.
The bankruptcy system also cuts some slack to people who have failed businesses. If more than 50% of your debt is business or tax debt (as opposed to consumer debt taken out for family or household purposes) then the median income analysis I have been describing simply does not apply. Going back to Barbara’s example above, even if her income is $58,800 and thus too high, if all of her debt is from a failed business, then the income won’t matter and she can get through Chapter 7.
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