People sometimes think of bankruptcy as an option only when they are no longer earning an income and have overwhelming debt. Job loss is one of the most common reasons for bankruptcy, as a household budget may no longer work without steady earnings – even if it was a responsible budget that worked easily before.
As a result, you may wonder whether you can file for bankruptcy while you are still earning money. You may have a job and a steady income, but it may not be enough to satisfy your debts. Would bankruptcy still be an option for you?
Chapter 7 bankruptcy
In some cases, you can file for Chapter 7, or liquidation bankruptcy, even if you still have positive monthly income. It depends on how much you earn. You must pass a means test to determine whether your income is low enough to qualify.
Chapter 13 bankruptcy
If you do not pass the means test, that does not necessarily mean you cannot file for bankruptcy. Another option is Chapter 13 bankruptcy.
Under a Chapter 13 plan, you reorganize your debt into a monthly repayment plan. Creditors still receive payment, but the debt is spread out over time, making it more affordable based on your income. This is often referred to as “wage earner’s bankruptcy,” as it is designed for people who still have an income but need help addressing their outstanding debt.
Exploring your options
Which type of bankruptcy is right for you depends on the specifics of your situation. This highlights why it is so important to understand all of the legal options available to you.