One of the questions I hear quite often from people considering bankruptcy is:

“I make pretty good money. Can I even file bankruptcy?”

The short answer is yes.

Having a good income does not automatically prevent you from filing bankruptcy. In fact, I have represented many people over the years who have what most people would consider a very good income but are still struggling badly with their debt.

The more important question is not simply how much money you make. The question is whether, after considering your income, household size, allowable expenses, assets and debts, you qualify for the particular type of bankruptcy you are considering.

A Good Income Does Not Necessarily Mean You Have Enough Money

This is something I try to explain to clients right away.

Someone can make $150,000, $200,000 or even more per year and still have a serious debt problem.

Why?

Because income is only one side of the equation.

Consider a family with a substantial mortgage, two car payments, high property taxes, health insurance, childcare expenses, student loans, credit-card debt and other ordinary household expenses.

On paper, the family’s income might look impressive.

But what matters is what is actually left over after paying reasonable and necessary living expenses.

I have had clients tell me, “I make too much money to file bankruptcy.”

When I look at their situation, that isn’t necessarily true.

Chapter 7 Bankruptcy and the Means Test

The biggest issue for someone with a higher income who wants to file Chapter 7 is generally the means test.

The means test was designed, in part, to determine whether a person’s financial circumstances create a presumption that they have enough income to repay some of their debts.

The first step generally involves comparing your household income with the applicable median family income for a household of your size in Michigan.

But this is where people sometimes get confused.

Being over the median income does not automatically mean you cannot file Chapter 7.

It generally means that you proceed to the next part of the means-test analysis.

That analysis takes into account a combination of allowable expenses and other factors. Depending on your circumstances, you may still qualify for Chapter 7 even though your income is substantially above the median.

This is one reason I don’t recommend that someone decide whether they can file bankruptcy simply by looking at their gross salary.

The bankruptcy calculation is much more complicated than that.

What If I Make Too Much Money for Chapter 7?

Suppose you have a high income and, after going through the means-test analysis, you don’t qualify for Chapter 7.

That does not necessarily mean bankruptcy is off the table.

Chapter 13 may still be an option.

Chapter 13 is designed for individuals with regular income who need a court-supervised repayment plan.

Depending upon your circumstances, a Chapter 13 plan can allow you to:

• Stop wage garnishments;
• Stop collection lawsuits;
• Deal with past-due mortgage payments;
• Catch up delinquent vehicle payments;
• Protect property from certain collection efforts;
• Consolidate certain debts into one monthly plan payment; and
• Ultimately receive a bankruptcy discharge of qualifying debts.

And there are situations where a person with a very good income may actually find Chapter 13 to be the better solution.

Your Debt Load Matters Too

Another important point is that bankruptcy isn’t designed only for people with low incomes.

I have represented people with excellent jobs and substantial incomes who simply have too much debt.

For example, someone might have $150,000 or $200,000 of unsecured debt from credit cards, personal loans, medical bills and other obligations.

They may be earning a very good salary.

But if they are spending virtually all of their income making minimum payments, they can find themselves in a situation where they are working primarily to pay creditors.

That is not necessarily a sustainable financial situation.

Bankruptcy law looks at the overall financial picture—not just the number on your paycheck.

Your Expenses Matter

When I meet with someone who has a higher income, I want to know where the money is going.

How much is the mortgage?

How much are the car payments?

How much are the property taxes?

What does the family spend on food, utilities, insurance, transportation and other ordinary living expenses?

Are there children in the household?

Are there childcare expenses?

Are there significant medical expenses?

Are there other legitimate financial obligations?

These details can make a tremendous difference.

A person making $180,000 a year who has $100,000 of disposable income is obviously in a very different position from someone making $180,000 who has a large family, a substantial mortgage and significant necessary household expenses.

Gross income by itself doesn’t tell the whole story.

Don’t Try to Make Yourself Look Poorer Than You Are

There is another point I think is important to emphasize.

If you have a good income, don’t try to manipulate your finances to make yourself appear to have a lower income or higher expenses than you actually have.

Tell your bankruptcy attorney the truth.

Provide complete and accurate information.

The bankruptcy process is based upon disclosure, and there are serious consequences for intentionally providing false information.

My job as your attorney is not to make your financial situation look worse than it is.

My job is to take your actual financial circumstances and determine what bankruptcy options the law provides.

What About Assets?

Income isn’t the only thing that matters.

We also have to look at what you own.

You may have substantial equity in a home, vehicles, retirement accounts, bank accounts or other property.

That doesn’t necessarily mean you cannot file bankruptcy.

Michigan bankruptcy law provides exemptions that protect certain types and amounts of property. The important question is whether your property is protected by the applicable exemptions.

This is another reason why I like to look at the entire financial picture before telling someone whether bankruptcy makes sense.

A High Income Can Actually Make Bankruptcy More Complicated

Ironically, having a good income can sometimes make a bankruptcy case more complicated—not necessarily impossible.

There may be additional questions about the means test, household size, allowable expenses, disposable income, assets and the appropriate chapter of bankruptcy.

That’s why I don’t think anyone should decide, based upon a quick internet search or something a friend told them, that they “make too much money to file bankruptcy.”

I’ve been practicing bankruptcy for more than 30 years, and I have seen just about every variation of this question.

“I make too much money.”

“I own a house.”

“I have a good job.”

“My spouse works.”

“I have retirement accounts.”

None of those facts, standing alone, necessarily answers the question.

So, Can You File Bankruptcy If You Have a Good Income?

Yes.

The real question is whether you qualify for Chapter 7 or Chapter 13 based upon your complete financial circumstances.

If you’re considering bankruptcy and you have a good income, don’t automatically assume that bankruptcy isn’t available to you.

And don’t assume that bankruptcy is the answer, either.

The right way to approach it is to look at the numbers.

What do you owe?

What do you own?

What do you earn?

What are your reasonable household expenses?

What does the means test show?

What exemptions apply?

And, perhaps most importantly, what are you trying to accomplish?

In a typical consumer bankruptcy case, the goal isn’t simply to “file bankruptcy.”

The goal is to use the bankruptcy laws to obtain a fresh financial start and, when appropriate, a bankruptcy discharge of debts that you cannot reasonably afford to pay.

If you have a good income but are overwhelmed by debt, I would encourage you to get the facts before deciding that bankruptcy isn’t an option.

You may make too much money for bankruptcy—or you may not. The only way to know is to actually run the numbers.