Even people earning a higher income sometimes find themselves facing financial difficulties and unable to make their monthly debt payments. Whether your income is high or low generally the reasons for your financial difficulties are similar. Something unexpected may have happened to reduce your income like an illness or business slowdown. You may have suffered through a divorce or you may have difficulties managing your credit. Although you may still be earning more than the average person, you find yourself having to make lifestyle changes. Monthly car payments, mortgage payments, living expenses don’t change overnight just because your income dropped.
Because a bankruptcy can be expensive if you have a higher than average income, it’s important to consider other options.
Understanding What A High Income Bankruptcy Will Cost
When I meet with individuals earning higher than average income I have to explain surplus income to them. Our Federal Government has rules in place that say if you file for bankruptcy and earn more than a certain amount (called the Surplus Income Threshold) then you have to pay some of this money to your creditors. The threshold amount depends on how many people are in your family. If you are single the threshold is lower. It increases up to a maximum for a family of 7 (the high end of the threshold).
Let me give you a simple example. Let’s say that John earns $10,000 a month. He has a stay at home wife and one child. The threshold limit for a family of 3 is currently $3,070 per month, let’s call this $3,000 to keep this example simple. So John is $7,000 over the threshold. Our government requires him to pay half of this to his creditors in a bankruptcy: $3,500. For how long? 21 months. That’s $73,500 in total. Unfortunately, he can’t manage a $3,500 bankruptcy payment a month no matter how hard he tries.
So what are his options? He could offer a proposal to his creditors. Let’s say he had $175,000 of debt. He could offer his creditors $1,400 monthly for 60 months totalling $84,000 or slightly less than half of what he owes them. Why would his creditors accept this? Because they are being offered more than what they would get from him through a bankruptcy. And why would John want to go this route? Well, even though he is paying his creditors more in total than what he would have to in a bankruptcy, he is more likely to be able to afford $1,400 on a monthly basis than $3,500.
As I said earlier, this example is very simplistic. In assessing an individual’s situation, I sit down with each person I meet and go over all aspects of their life: income, family situation, assets, liabilities, taxes and lifestyle. I tailor a solution to their financial situation.
There are alternatives to a higher income bankruptcy, and we can find them. Contact us today to find your solution.