Some fail to adequately understand how you can have a large income coming in and still have a need to file for bankruptcy. If your debts are overwhelming, you may not be able to pay your bills regardless of income. That might be because the more you make, the more debt you think you can handle. Having a high income can prevent some who need it from filing for bankruptcy.
Read on and find out why income can affect your bankruptcy.
The Income Problem
The bankruptcy codes were updated a few years ago in an attempt to cut down on the numbers of filers. Several measures were put in place and an income limit was just one of them. Bankruptcy legal experts thought that rich filers were taking advantage of bankruptcy to shed unwanted debts even when they could have paid those debts off without filing. When you fill out the bankruptcy paperwork, you must complete a short form listing income from all sources. If your income is too high, you must take further steps.
The Means Test
Having an income that exceeds the state's median income level triggers a need for the bankruptcy filer to complete a second income form known as the means test. The means test will take your stated income and allow filers to use certain qualified expenses to reduce the income enough that they are able to file bankruptcy. Know that there are residency requirements in place that preclude picking your own state of residence for filing bankruptcy so you'll have to deal with your rightful state of residence.
If you have extraordinarily high housing or medical expenses, you might still be allowed to file even if your income is too high. In addition to those expenses, several other areas can be deducted from your income. Working with a bankruptcy lawyer is important because they will likely have more suggestions on how to overcome the income limits that could prohibit you from filing.
You might also consider waiting a bit longer to file bankruptcy. The means test looks at your most recent six months of income and your income level might drop in the future. You could also consider filing chapter 13 instead of chapter 7 bankruptcy. Chapter 13 is more of a debt reorganization plan and it has no income requirements. You can always file a chapter 13 to get some relief and then convert to a chapter 7 bankruptcy later on.
Speak to a bankruptcy attorney about the debt relief you need.