Eligibility for Bankruptcy and Debt Level
Your eligibility to file for chapter 7 bankruptcy doesn’t depend on how much money you owe or how many creditors you have. Assuming that most of your debts are consumer debts (and not business debts), eligibility for chapter 7 bankruptcy depends on a combination of just two things: your family income and your household size. The bankruptcy code rewards you for being married and having children who live at home with you. If you are unmarried with no children, the annualized gross income cutoff in Wyoming is currently $50,528, which is measured by your past six month average earnings not counting the month in which you file. An unmarried individual living alone who makes money at the rate of $55,000 gross per year is not eligible for chapter 7 in Wyoming. If the same person gets married and the new spouse and four minor children move in, the family household income threshold almost doubles, to $97,982. These “means test” numbers are adjusted periodically and can be found on the U.S. Trustee Program website.
The real question, of course, is whether filing for bankruptcy is a good idea. The most common reasons that people file for bankruptcy are divorce, a serious medical event, loss of job or reduced wages. Wage garnishment is often a triggering event because it results in the immediate loss of 25% of your net paycheck, and filing bankruptcy will stop wage garnishment. If you have payday loans, which can have astronomical interest rates of 230% or more, you may find yourself in bankruptcy even if the total amount of your debt would otherwise not be that large. At 230%, the principal doubles every 4 months, so if you borrow $1,000 at 230% annual interest compounded monthly, in four months you owe $2,016 and in 8 months you owe $4,066. After two years, $1,000 borrowed at 230% interest would result in an amount owing of $67,253.
As a rule of thumb, if you can’t reasonably pay off your consumer debts over the next three to five years, then bankruptcy might not only be a good idea for you, it might be good for your family and community as well. People who are on a debt service treadmill from which they cannot reasonably escape are less likely to be productive. If much of your paycheck is going to banks in New York, that is a drag not just on you and your family but on your local community as well.
Another factor in deciding whether to file bankruptcy is what you get to keep. Most bankruptcy filers get to keep their vehicle, clothing, household goods and other personal effects. There are some things that the bankruptcy trustee may take away from you. For example, there is no allowance for firearms but if you want to keep them, the trustee will typically let you keep your guns if you pay him their fair market value. Likewise, you may have to give up the stuffed moose on the wall – or pay the trustee its fair value so you can keep it.
© 2015 Clark Stith
We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.[wpfblikebox]