By: Jonathan Cohen
“I make too much to file bankruptcy” is a common misconception. This statement can come from a single person grossing $30,000.00 a year, a family of 4 with household income of $105,000.00 to an individual with significant six figure income and significant business related debts.
Having income does not make someone ineligible to file bankruptcy. In fact, regardless of income, the Federal Bankruptcy Code offers relief for pretty much everyone.
Bankruptcy is a tool that can and is used to help you get out of debt and retain your assets. When Congress changed the Bankruptcy Code in 2005, median income became a buzzword in the bankruptcy community. Median income is determined by the Internal Revenue Service (IRS).
The median income of an individual or married couple is the first step to determining whether clients fall into Chapter 7 or Chapter 13 Bankruptcy. Earning over the median income can mean that you are not eligible for Chapter 7 Bankruptcy but are eligible to file a Chapter 13 Bankruptcy. Chapter 13 Bankruptcy provides some repayment to your creditors.
The IRS determines median income by your state of legal residence and it is updated periodically. It is adjusted by family size. Keep in mind that the median income is calculated off of your gross pay, 1099 income, or self-employed earnings (after expenses) before any deductions for taxes and insurance. Currently, in New Jersey the median income is as follows:
- For one person: $62,226.00
- For two people: $69,634.00
- For three people: $87,576.00
- For four people: $105,175.00
- For each additional person add $7,500.00 per person.
Household size is determined by whether or not you are married and the number of dependants you have listed on your federal tax return. A married couple with no dependants would be a household of two people. A single head of household with three dependants would be a household of four and so forth.
Remember, your household income is just a jumping off point to discuss your financial circumstances. As always, I am here and ready to help you get a fresh start while retaining your home, car, and other assets.