People frequently tell me that they are afraid that they make too much money to file for bankruptcy. Hogwash. If you have more debt than you can pay, you are going to qualify for at least one chapter of bankruptcy — the question is which one.
Virtually everyone can file either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy. There is an income and expense qualifier for filing, generally called the Means Test; but it can’t bar you from the Bankruptcy Court, and it is not just income, it also includes reasonable and necessary expenses.
If you can’t pass the Means Test you are still eligible to file a Chapter 13 Bankruptcy, which is a form of reorganization intended for individuals — as opposed to the more widely recognized reorganization Chapter, Chapter 11, which is really intended for businesses (although, individuals can and do file Chapter 11 cases).
So, if you are putting off saving for retirement or your kids’ college, if you are robbing Peter to pay Paul, or losing sleep over how you will cover the next unexpected expense; it may be time to swallow hard and give me, or another experienced bankruptcy attorney a call. You work too hard not to give yourself a brighter future.
I read a lot of business news. I do for a lot of reasons. One of those reasons is that I need to know what the larger, economic trends are as they unfold around me. That is part of my business. One thing that I have been noticing for a long time is that what I see in my office and what I read in the National business news has never quite seemed to match up. The news talks about economic growth, increased productivity, skyrocketing executive pay and returns for shareholders. What I see is people struggling really hard to hang on to where they used to be.
Marketwatch had an article today that caught my eye. I read the article, because of the title, “Your Paycheck Has Been Shrinking for the Last Five Years.”, but it was the last sentence that really grabbed my attention.
“So wage growth has been generally weak for more than 15 years.”
Yea, or maybe even more than that. It is nice to know, sort of, that it isn’t just the little microcosm that is my office; but it is still getting old to keep watching people come in who are making the same or less than they were 5 — 10 — even 15 years ago. I’m not adjusting for inflation, here. I am talking real wages. I’d say wage growth has been slow all right.
What scares me is what this has to say about future social and economic stability.
Easily the most frequent search that leads people to this blog is, “Do I make too much money to file for bankruptcy?” Bankruptcy relief is not limited to poor people.
Generally, people who ask this question, or ones like it, know enough to have figured out that there is something generally called THE MEANS TEST; and it is scary. Well, yes.
In reality, the Means Test is a lot like a tax return; and you don’t have to have paid taxes for very many years to figure out that some people who make a lot of money don’t pay a whole lot in taxes. It sucks. It’s not fair. It is real. Welcome to the Means Test.
The Means Test sucks. It isn’t fair, and it is very real. Oh, and it is a LOT like a tax return. Yes, the Means Test starts with income — so does a tax return. Then, you get into the deductions — just like a tax return. That is where you need a CPA or a good bankruptcy lawyer.
Sure, there are lots of Means Test calculators available online. There are plenty of online tax calculators too. Neither of them is a substitute for someone who has spent real time studying the rules.
So, don’t call a bankruptcy lawyer and say, I know I make too much to file for bankruptcy. Call and say, I have more debt than I can pay; and I need to talk to someone who understands the Means Test.
The centerpiece of the 2005 Bankruptcy reform act is something called the Means Test. It is a bit of an accounting nightmare, but it really doesn’t limit access to the Bankruptcy courts very often. It just chews up time and money. The great thing about the means test is that you only have to complete the whole thing if you are over median income. Congress chose to define high income filers as those who make more than the median income for their household and family size in their home State.
That means that if 50.1% of the households of your size in your State make less than you do, you are a high income filer for purposes of the Means Test. Except, if you are high income, why are you considering Bankruptcy?
Consider this little fact that I just found in a USAToday.com news story about recent Congressional action concerning school lunches. In Oklahoma 66% of all school children qualified for free or reduced price school lunches. That is right, 2/3 of all school children in Oklahoma come from households so poor that they qualify for subsidized lunches. Kind of shifts the parameters on high income a bit.