Financial struggles are more common that most people think – most Dallas-area residents are only one financial bump in the road away from out of control debt. One of the most common questions we hear in initial consultations with clients is if there is an income limit to file for bankruptcy. One of the most common misconceptions about bankruptcy is that it is only available to people with very low incomes. This simply is not true. Whether you are earning a modest salary or have a high-paying job, bankruptcy can still be a viable option for getting your finances back on track.
Bankruptcy has no income limit
Bankruptcy laws are designed to help individuals and families, regardless of their income, who are struggling to manage their debts. The U.S. Bankruptcy Code does not set an upper income limit that disqualifies someone from filing. Instead, it takes a more nuanced approach by evaluating your financial situation to determine which type of bankruptcy is appropriate for you.
This means that whether you are earning $25,000 a year or $250,000 a year, you have the option to file for bankruptcy if your debts are unmanageable. The key factor is not how much money you make, but rather your ability (or inability) to pay your debts.
How your income affects the type of bankruptcy you file
While there is no income limit, your earnings do play a role in determining the type of bankruptcy you can file. The two most common types for individuals are Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy is often referred to as a “fresh start” bankruptcy. It is typically used by individuals who cannot afford to pay back their debts. In this type of bankruptcy, certain non-essential assets may be sold to repay creditors, but most essential items (such as your home, car, and personal belongings) are protected under state and federal exemption laws.
Eligibility for Chapter 7 is determined by a “means test”. This test compares your income to the median income in your state. If your income falls below the median, you automatically qualify for Chapter 7. If your income is higher, you may still qualify if you can prove that your expenses leave you with insufficient disposable income to repay your debts.
Chapter 13 bankruptcy, on the other hand, is for individuals who have a steady income but are struggling to keep up with their financial obligations. Instead of liquidating assets or eliminating debts, Chapter 13 allows you to reorganize your debts into a manageable repayment plan, typically lasting three to five years.
If you earn a higher income, Chapter 13 might be your best option, especially if you want to catch up on overdue mortgage payments, car loans, or other secured debts. The repayment plan is tailored to your income and expenses, ensuring that you can realistically meet the obligations while keeping your essential assets.
The key factor: Ability to pay past-Due payments
The main consideration in any bankruptcy case is your ability to catch up on past-due payments. This is what dictates whether Chapter 7 or Chapter 13 is the right choice for you. If you cannot afford to catch up on past-due payments (such as a mortgage or car loan), Chapter 7 may be the better option to discharge unsecured debts like credit card balances, medical bills, and personal loans.
If you have the means to catch up on these payments over time, Chapter 13 can give you the breathing room you need to get current without losing valuable assets like your home or car.
Both options are designed to relieve the stress of overwhelming debt – and the constant calls from bill collectors – while providing a structured path forward based on your unique financial situation.
Bankruptcy is for everyone – regardless of income
It is important to understand that bankruptcy is not a punishment or a sign of failure. It is a legal tool available to anyone, from those with low income to high earners, to resolve financial difficulties and regain control of their future. Whether your financial challenges stem from unexpected medical bills, a job loss, or even overspending, bankruptcy offers a way out.
Take the first step toward financial freedom
If you are feeling trapped by out-of-control debt and unsure of your options, don’t wait any longer to seek help. At Rubin & Associates, our experienced bankruptcy attorneys are here to guide you through every step of the process. We will assess your financial situation, explain your options, and help you choose the path that is right for you.
Call 214-760-7777 today to schedule a free consultation. Let Rubin & Associates help you take the first step toward a brighter financial future.