One must pass a Means Test when seeking to file Chapter 7 bankruptcy. If your income is above a certain level, you may not qualify to file Chapter 7, which can be a shocking realization for many. Chapter 7 is often seen as a fresh start, but not everyone qualifies.
Many individuals make a decent living yet find themselves overwhelmed by debt. The following story reflects the real challenges faced by many people who have sought my help. Let’s meet Earnest Hines.
Meet Earnest Hines: A Typical Case
Mr. Hines is a mid-level manager earning $100,000 annually. In early 2020, he broke his collarbone while playing basketball and was off work for six weeks. Unfortunately, the pandemic hit shortly after, and his employer had to shut down temporarily.
While out of work, Mr. Hines maxed out his credit cards to cover his expenses. ? When he returned to work, he tried to catch up, but the debt had become too much. Due to late payments, his credit card interest rates skyrocketed to 29%, and his debt ballooned to $40,000.
To stay current, Mr. Hines took out a $10,000 loan with an overwhelming 36% interest rate. He also owes $5,000 to the IRS, and his monthly car payment is $600. These debts have become too much for him to handle.
Breaking Down the Numbers
Mr. Hines earns $8,333 per month before taxes. After deductions for taxes ($2,192), health insurance ($300), and 401k contributions and loan repayment ($300), his take-home pay is $5,541. His monthly debt payments for a sixty month period include:
- Credit Cards: $1,292
- Personal Loan: $361
- IRS Debt: $100
- Student Loans: $500
- Car Loan: $600
His monthly debt service is $2,853, which consumes more than half of his take-home pay, leaving little room for living expenses or savings.
The Emotional Toll of Debt
The burden Mr. Hines faces is not just financial; it also takes an emotional toll. Constantly worrying about bills, receiving creditor calls, and feeling hopeless can lead to extreme stress and anxiety. Many in his position feel overwhelmed and unsure how to move forward. Mr. Hines knows his situation is unsustainable and that something must change.
The Light at the End of the Tunnel: Chapter 13 Bankruptcy
One solution that can provide real relief is Chapter 13 bankruptcy. Chapter 13 creates a manageable plan to restructure Mr. Hines’ debt, offering a way to move forward. Here’s how a Chapter 13 plan might help him over five years:
- Car Loan: Mr. Hines will continue paying $600 monthly.
- Student Loans: Payments would be deferred during Chapter 13.
- Chapter 13 Payment: The estimated monthly payment would be $1,260.
With this plan, Mr. Hines’ monthly debt payments would drop by about $1,000, giving him much-needed breathing room to cover living costs and start rebuilding.
Why Chapter 13 May Be the Right Choice
For those like Mr. Hines, Chapter 13 offers a way to manage debts without the crushing burden of high interest rates. It allows individuals to create a repayment plan based on what they can realistically afford, providing the stability needed to regain financial control.
Chapter 13 also protects essential assets, like a car or home, while reorganizing debts. Unlike Chapter 7, which might require selling assets, Chapter 13 is ideal for people with steady incomes who want to protect what they’ve worked hard for. It also stops most collection activities immediately after filing, ending creditor harassment.
The Road to Financial Recovery
Mr. Hines’ journey through Chapter 13 is focused on creating a sustainable financial future. By reducing his monthly debt payments by $1,000, he can focus on covering living expenses, building an emergency fund, and improving his credit score. Bankruptcy can be difficult, but for many, it is the first step towards regaining control and building a better future.
If you are in a similar situation, know you are not alone. Chapter 13 can be the light at the end of the tunnel, offering a structured, manageable path to recovery. It’s not just about surviving—it’s about thriving again.
Call Robert J. Adams (The Bill Slayer) at 312-804-194 for a free phone consultation and speak directly to a lawyer.
Two additional thoughts
- A Chapter 13 case can be converted to Chapter 7 if need be.
- Any raise or bonus-You keep!