Bankruptcy is a tool that you can use when there is an issue regarding your income-to-debt ratio. The debt that you took on may have seemed affordable at the time, but something has changed. Perhaps you lost your job or saw a reduction in your income, so that debt isn’t affordable any longer.
Certainly, this means that there are cases in which people file for bankruptcy when they have no income at all. Someone may get laid off, never be able to find another job, and finally have to declare bankruptcy when their savings run out. But it is also possible to use bankruptcy even when you still have an income. Don’t assume that those earnings automatically disqualify you.
Chapter 13 bankruptcy
There is a means test when trying to use Chapter 7 bankruptcy, which would liquidate non-exempt assets and forgive debts. It is possible to earn too much money to qualify for Chapter 7, causing you to fail this means test. This is when you may want to consider Chapter 13 bankruptcy instead.
With Chapter 13, which is often referred to as a “wage earner’s plan,” the debt is consolidated into a repayment plan. This is based on the amount of monthly income, ensuring that these payments are affordable. You then spend 3 to 5 years making consistent payments until you have worked your way through the debt. In this way, you can still re-organize your finances to make your budget work based on your current income levels, even when you earn too much money for the debt to simply be forgiven outright.
When filing for bankruptcy, it’s very important to know exactly what options you have and how they may be beneficial in your unique situation.
