Thursday, April 21, 2011

Do I Make Too Much Money for Indiana Bankruptcy?

            As an attorney in Hamilton County, Indiana, I have represented bankruptcy clients in every range of the income spectrum from long-term unemployment to earning more than $250,000.00 per year.  The short answer is that there is no maximum income under the bankruptcy code that a person cannot exceed in order to file a bankruptcy petition.  However, that doesn't mean that it is always the best step for a high earner to file bankruptcy.

        For the purposes of this blog, I would identify a "high-earner" as an individual making $100,000.00 per year gross or a family of no more than 2 children making $125,000.00 per year.  However, high-earner is not a legal term nor are the income numbers I wrote accurate means test numbers.  The first thing to keep in mind is that most high-earners do not qualify for a Chapter 7 bankruptcy (although this is certainly possible).  The reason that most high earners do not qualify for a Chapter 7 bankruptcy is because they usually fail the means test and have money left over at the end of each month that could be used to pay creditors.

       So, most high-earners who must consider bankruptcy due to consumer debt have the option of filing a Chapter 13 bankruptcy or attempting to settle their debts on their own or with the help of an attorney.  The option of whether to file a Chapter 13 or attempt to settle debts outside of bankruptcy can be a difficult decision.  Which direction is the best changes from person to person, but often depends on how far behind the high-earner has fallen on debts, the amount of excess income that the high-earner has at the end of the month as well as whether filing a bankruptcy could negatively affect that person's profession.

       If the high-earner has fallen behind on debts to the point that lawsuits have been filed and there is a garnishment pending it is more likely that Chapter 13 is a better option.  This is true because after as much as 25% is taken out of the high-earner's paycheck he or she will likely not have enough money to save to try to pay off other debts.  On the other hand, if the high-earner attempts to settle his or her debts as soon as he or she is unable to pay, there is a better chance that a creditor workout will be successful.  I find this to be the case because creditors will typically not negotiate until a payment is a few months behind.  The high-earner can use this time to save up money to pay off debts in a lump-sum settlement.  Since it is typically easier to settle a debt with a lump-sum instead of a payment arrangement, there is a better chance of settlement without bankruptcy for the high-earner who starts planning early.

       If a high-earner files a Chapter 13 bankruptcy, he or she will be paying back some amount of money to his or her creditors over a period of three to five years.  The percentage of debt paid back by high earners in a Chapter 13 tends to be a higher percentage of debt than a lower-income Chapter 13 debtor.  In fact, is it possible for a high-earner to have to pay back 100% of what they owe to creditors through the Chapter 13 bankruptcy plan even though this is not typical of most Chapter 13 bankruptcy filers.

       Just as it does in life, having extra money gives a potential debtor more options.  Specifically, the option of opting to settle with creditors outside of the bankruptcy process so as to avoid filing bankruptcy, the perceived stigma of filing bankruptcy, and the intrusion of the trustee into the person's privacy.  The bottom line is that just because a person earns more income than most does not mean that he or she is not a good candidate for bankruptcy.  Financial struggles do not discriminate.  At Halcomb Singler we are dedicated to advising people whether bankruptcy is a good option to solve their financial problems.  If you believe you may ned to file bankruptcy and would like to discuss it with an attorney please call, (317) 575-8222 or click here to request a consultation.    

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.

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