Bankruptcy Is NOT Just for Low-Income Consumers

The idea that bankruptcy is just for low-income consumers is a misconception.

In fact, according to a recent article that references the credit scoring company VantageScore, American consumers with prime and even super-prime credit scores are starting to miss debt repayments and facing some financial challenges.

That means that those who have high credit scores are just as susceptible to needing bankruptcy as anybody else.

What the Stats Say

According to the article, the sharpest increase in delinquencies was seen in the aforementioned prime and super-prime customers who are typically higher income earning and the most financially secure. Prime customers are those with a credit score between 661-780, while super-prime customers score between 781-850.

And it isn’t just a little. Late repayments over 90 days past due were up 47% year-over-year for the prime segment. For the super-prime segment, the figure is up 109% year-over-year.

There’s also been an increase in late-stage delinquencies in mortgages and auto loans. Defaults in early stage for these (i.e. late repayments between 30-59 days) have increased at the fastest pace.

All of these are a sure sign that consumer financial health may be deteriorating more across the socio-economic spectrum than many would like to believe.

Filing for High Net-Worth Bankruptcy

Many people with high income and/or prime credit scores think that they don’t qualify for bankruptcy. This just isn’t true. Each person’s specific financial situation – which includes debts and assets along with income – determines eligibility.

In other words, people of all income levels can file for bankruptcy. But knowing whether to file for Chapter 7 or Chapter 13 bankruptcy can be tricky and you’d be well-advised to seek counsel with skilled high-net-worth bankruptcy attorneys.

Determining Whether You Qualify for Chapter 7 Bankruptcy

Most people want to file Chapter 7 bankruptcy. It’s the quickest. And it wipes out most unsecured debt like medical bills, utility balances, and credit card accounts to give people a fresh start. But not everyone qualifies for Chapter 7 discharge. There is an income limit for debtors whose debts are primarily consumer (i.e. household) debts.

To determine qualification, the consumer debtor must pass a two-step means test. Those with too high an income typically fail this first part if they make a lot of money as a result of their family’s gross income or according to their state’s median income for the same household size. Debtors whose debts are primarily non-consumer debts, may be exempt from the means test. You should consult an experienced bankruptcy attorney to determine whether your debts qualify as non-consumer debts.

But failing the first part doesn’t mean a person is automatically disqualified. They are still able to deduct expenses in the second part. And if those expenses are high enough, they may pass. Expenses, however, don’t include anything that supports a needlessly lavish lifestyle.

The good news is, even if someone is unable to qualify for Chapter 7 because of their income and assets, they may still have a good chance with a Chapter 13 bankruptcy.

The Benefit of Chapter 13 Bankruptcy

Chapter 13 bankruptcy provides more of a debt reorganization platform. It’s often recommended for those who still have a significant income and can afford to pay on a three- to five-year repayment plan. Upon completing the plan, the bankruptcy court discharges most of the remaining unsecured debt balances.

If you need to save your home from foreclosure or your car from repossession, or if you need time to pay off debt resulting from taxes or other support obligations that won’t be eliminated in a bankruptcy, Chapter 13 will be a better option. The same can be said for eliminating debt relating to security violations against a federally insured institution, or if you wish to discharge any responsibility to pay an ex-spouse under a marital property settlement.

There’s no income limit in Chapter 13 bankruptcy. Yet, income shouldn’t be the only consideration when deciding which bankruptcy type will work the best. Each chapter offers different benefits that address distinct financial problems. 

Get Help from an Experienced Bankruptcy Attorney

Bankruptcy is definitely not just for low-income consumers. The data backs it up. Even so, the bankruptcy process for wealthy individuals is complicated. It requires the sort of specialized expertise offered by experienced high-net-worth bankruptcy law attorneys.

A skilled and savvy bankruptcy lawyer can help determine the best chapter for your situation and maximize allowed deductions. Let us help!

Our team of bankruptcy attorneys has more than 100 years of combined experience. So contact us today at 248-462-7698 to schedule a free initial consultation. You can also connect using our email form. We look forward to hearing from you.