There’s a strange phenomenon of people seemingly having plenty of money but filing bankruptcy. Many appear to come out successful after filing even multiple times. There are cases like Donald Trump, who has filed for bankruptcy through his corporations four times but maintains a net worth of $4.5 billion. Billy Joel has gone bankrupt three times despite a net worth of $160 million.
However, when you take a quick look at the requirements for filing for bankruptcy, you may wonder if your income limits your options.
Is it possible to be too rich to declare bankruptcy? Upon reviewing cases like Trump’s and Joel’s the answer appears to be a resounding no. However, there are some critical distinctions to be aware of.
Why and How the Rich Go Bankrupt
Keep in mind that some celebrities, most notably Trump, have never filed for personal bankruptcy. Instead, they filed on behalf of their business and were careful to make sure their personal finances were not involved.
In these cases, bankruptcy provided an opportune chance to reorganize business debts while even remaining in operation in some cases. But when we consider the amount of people who file for bankruptcy each year, we may wonder how it’s possible to go broke on a decent or high salary.
Student loans, consumer debt and mortgages all add up fast. People are often able to keep their heads above water until disaster strikes. It may come in the form an illness, job loss or poor business decision. This sudden occurrence makes it difficult to keep up with mounting payments.
In the end, people take a look at their income and wonder if bankruptcy is even a viable option.
Available Bankruptcy Chapters
There’s a common misconception that people with high incomes can’t file for bankruptcy. It’s rooted in the infamous Means Test, which allows the bankruptcy court to determine if it’s possible for the party involved to pay their debts (at least partially). But even if you fail the test, you can still file for bankruptcy.
Here’s why: different forms of bankruptcies exist. If you don’t pass the Means Test, you’ll have to pay creditors through Chapter 13, rather than Chapter 7. You’ll need to determine if you secured and unsecured debts meet the requirements before filing.
For business-related debts, the Means Test is not a factor. However, it can be tricky to distinguish between business and consumer debt. To make the distinction, you’ll need an experienced advisor to analyze your debts and follow the appropriate steps before filing.
Beyond Chapter 7 and Chapter 13
What happens if you don’t meet the requirements for Chapter 7 or Chapter 13 bankruptcy? Chapter 11 is an option for individuals with high incomes and/or high amounts of debt. Though Chapter 11 is typically associated with corporations, it can be used to allow individuals the chance to reorganize debts.
Finally, debt negotiations are available to individuals who want to get out of debt but don’t qualify for traditional bankruptcy. However, you’ll need to consult a law firm experienced in bankruptcy law to determine the best plan of action.
To find firmer financial ground and plan for a better future, contact Tyler, Bartl & Ramsdell, P.L.C.. Our firm has helped thousands of individuals and businesses safeguard their finances and get back on track. Give us a call today at (703) 549-5000 to schedule a free consultation.