You might think that bankruptcy is only for those who have little to no income or are no longer employed. It may surprise you to find out that you can actually earn a high income and qualify for bankruptcy and debt relief.

However, how much money you make on an annual basis will be used to determine which chapter of bankruptcy you can file, whether Chapter 7 or Chapter 13.

Your qualification for one or the other will depend on your income as well as your expenses and debt.

Chapter 7 Bankruptcy Filing

Chapter 7 is the preferred type of bankruptcy for many people because it eradicates nearly all unsecured debt. This type of debt includes utility balances, credit card accounts, and medical bills. These debts are typically relieved without the debtor having to pay creditors back.

However, not everyone will qualify for Chapter 7 discharge, which wipes out qualifying debt. Those looking to file Chapter 7 bankruptcy must pass the two-step means test described below.

That being said, it is possible for someone who makes a significant income to pass this test.

The Means Test

Part 1: Household Income

The first portion of the means test inquires into your family income. If it is less than the state of Florida’s median family income, you automatically qualify for Chapter 7. You do not have to proceed to the second portion of the means test. You can find the most recent figures on median income on the U.S. Trustee’s website.

If your income is higher than the median, you can still pass this portion of the test if you support a number of dependents.

Part 2: Expenses

If your household income is higher than Florida’s median income, you have another opportunity to qualify. You will be permitted to subtract select expenses—some actual, others predetermined—from your income amount.

Deductible expenses include mortgage and rent expenses, utility bills and food, childcare, vehicle and transportation costs, life insurance premiums, income taxes, payroll deductions, and tithing.

If the remaining amount, known as disposable income, is inadequate to fund a Chapter 13 repayment plan, you’ll qualify for Chapter 7.

You will typically be required to provide proof of all claimed expenses.

What is Presumption of Abuse?

High-income earners who file Chapter 7 bankruptcy will need to prove that they are filing their case in good faith. Their expenses, therefore, must be deemed reasonable and fair to their creditors.

Typically, these individuals will not be permitted to pay for luxury items, such as a child’s college education, while declining to repay unsecured creditors.

Chapter 13 Bankruptcy Filing

If you don’t qualify via the means test described above, you may be able to reorganize your debt with a Chapter 13 bankruptcy. These bankruptcies allow you to pay off creditors over a three to five year period, utilizing your disposable income.

Once you have successfully completed the payment plan, the court will discharge the remaining unsecured debt.

More to Consider

There are additional benefits to each type of filing, so income should not be your only consideration when choosing which proceeding is right for you.

For instance, filing for Chapter 13 bankruptcy allows you to:

• Save a home from foreclosure
• Prevent your car from being repossessed
• Give you additional time to pay a debt that will not be discharged, such as child support
• Discharge obligations under a marital property settlement

As always, every case is unique. Although these guidelines can give you a good idea about your options, there is no substitute for speaking with an experienced bankruptcy attorney.

The Sarasota law firm of Richard V. Ellis guarantees personal and attentive representation to those seeking personal bankruptcy. Call us today.