Why Your Household Income Matters in a St. Louis Bankruptcy

When you get right down to it (when it’s all boiled down to the brass tacks), a St Louis bankruptcy is going to depend largely on your household income level. In fact, this element will play the biggest role in which chapter of bankruptcy you end up filing. (For instance, you must be under a certain median income level in order to qualify for a St Louis Chapter 7 bankruptcy; and if you end up filing a Chapter 13, your household income will play a huge factor in how high your monthly payment will be).

Most folks who come to see me for a St Louis bankruptcy consultation want to file a Chapter 7. I have no problem with this at all, but what most people do not realize is that there are certain qualifying criteria that must first be met. These criteria were laid down by the US Congress in 2005 (after the lawyers for all major banks wrote it out for them). The first qualifying question is pretty straightforward: Have you ever filed a Chapter 7 before? If so, then you must wait a full eight (8) years before you can file a new one.

But the second qualifier in a Ch7 has to do with your household income. Because if the total income in your household exceeds a certain threshold level, then you may not be able to file a Chapter 7 (because the government will say you “make too much money”). So let’s look at a specific example: Say you are a household of three (yourself, your spouse, and one minor child). According to the federal government, the average (or median) income for this sized household is: $70,089 (as of August 2018). Your total household income (from all sources) is either going to be above this number, or below it. If you are below the median (or if we can at least get you below the median by making use of certain deductions), then there is a very good chance you will qualify for a Chapter 7. If not, then we would probably start talking about a Chapter 13 (incidentally, Ch13s come with a great many benefits that do not exist in a Ch7).

As noted above, the court will require that every single source of income is reported in order to determine whether or not you fall below the median. This would include wages from your regular employment, but also things like: business income; governmental support (such as food stamps and unemployment benefits); and child support. When calculating the total household income, the court will also demand that we include your spouse’s income (even when you plan on filing a bankruptcy individually). So as you can see, the definition of “household income” is fairly broad. But of course, we are given the opportunity to deduct out certain items from your gross pay. For instance, we can deduct out taxes (federal, state, and local), insurance (medical, dental, and vision), retirement contributions, charitable donations, etc. After these deductions are taken, we can sometimes get you into a Ch7 (especially when your gross pay appears to be above the median income level).

So again, let’s use the example above (of a family of three). The median income level for this household size is $70,089. Let’s assume you gross about $35,000 per year, and your spouse makes about $20,000 per year in part time work. Your spouse also receives $200 per month for child support (or $2,400 per year). In total, the household income would be: $57,400. In this set of circumstances, you are clearly below the median. Assuming you have not filed a Ch7 within the last eight years, then congratulations, you qualify for a St Louis Chapter 7 bankruptcy!!

But what if you are above the median income level? What if after all available deductions are taken, your household income far exceeds this mark? In this kind of situation, we would begin focusing on a St Louis Chapter 13 bankruptcy. The court describes a Ch13 as a repayment plan over course of three (3) to five (5) years during which certain debts are paid back. Some examples would include: car loans (but with an interest rate of about 5-6%, which is often considerably lower than your current rate); back child support; certain tax debts; any mortgage payments that you may have fallen behind on; and a portion of your unsecured debts (credit cards, medical bills, payday loans, etc.) Our team will figure out what all needs to be paid back, and then determine what your monthly payment will be.

The goal with regards to a Ch13 is to make the monthly payment as low as we possibly can. How do we accomplish this goal? You probably have guessed the answer, because once again, the monthly Ch13 payment will be determined largely by your household income!! Here is an example of what I’m talking about: Let’s once again use the household of three scenario described above in which the median income for a household three is just over $70K. But let’s now assume that the total household income (from all sources) is $100,000. So obviously, you would be quite a bit above the median income level, and therefore your only option would be a Ch13 (because you would be about $30K over). But let’s also assume that you owe about $65,000 in unsecured debts (such as medical bills, credit cards, etc.) So how much of this unsecured debt do you have to pay back inside this make-believe Chapter 13? The basic rule of thumb to follow in this kind of situation is to look at how much household income you have (100K) versus what the median for a household of three is (70K), and calculate the difference (which is of course 30K). The rule of thumb would state that, as a result of you having a $30,000 difference you would pay back 30K of your $65,000 unsecured debt. This 30K would become a part of your repayment plan (again, spread out over three to five years in length). What about the remaining $35,000 of your unsecured debt that is not repaid inside the Chapter 13? That portion would be discharged by the court (i.e. you would not have to pay that part back at all)!!

So as you can see, the amount of income in your household plays a very large role indeed (regardless of which chapter of bankruptcy you choose to file). And things can get even more convoluted when people change jobs, or their pay is cut, or they are laid off, or a new bonus structure is added to your compensation package. And this is precisely why it is so very important to make sure that the law firm you hire knows what they are doing!! Our team has specialized in St Louis bankruptcy for close to two decades. Not only do we understand the ins and outs (and tiny little details of bankruptcy), we also have good working relationships with all the judges, clerks, and Trustees. All you need to do is give us a call, and we will get to work on your case immediately! We look forward to answering all your questions, describing your full range of options, and getting you back on the road towards financial recovery!

At The Bankruptcy Company, we want to make sure that you receive the very best bankruptcy services in all of the St Louis Missouri area. Our team will get you back on your feet, help to dramatically improve your financial standing, and put you in the best position possible for the future. The attorney fees for a standard St Louis MO Chapter 7 are $675, and the upfront fees for a St Louis MO Chapter 13 are $300. But the initial consultation is free of charge!!