When some people think about personal bankruptcy, they often picture those with limited resources and irresponsible personal habits. It is certainly true that there are types of bankruptcies specifically geared toward those with lower incomes and significant amounts of unsecured debt, specifically Chapter 7 bankruptcy.
However, Chapter 7 bankruptcy is not the only type of personal bankruptcy. There are also Chapter 13 proceedings. A Chapter 13 bankruptcy results in a repayment plan and is accessible to individuals regardless of their income level. Chapter 13 bankruptcy is often the go-to solution for successful professionals who are coping with high levels of debt.
More income often means more debt
Although people tend to assume that those living on less money accumulate more debt, research into credit card debt, in particular, shows that the opposite is true. Those with household incomes of under $50,000 are less likely than those earning higher, more competitive wages to carry significant amounts of credit card debt.
Those in professional positions often feel the need to “keep up with the Joneses” to protect an image of success. They need nicer vehicles, more fashionable clothes and other trappings of success to maintain their image and their careers. Additionally, they may be more likely to take on debt because they are confident in their ability to pay it off given enough time.
All it takes is a job loss or an emergency, like a car crash or cancer diagnosis, to leave someone who commands a competitive wage unable to meet their financial obligations. Chapter 13 bankruptcy is often the best solution for those with good careers but also high levels of debt. There is no means test to pass, and their assets will not be at risk of liquidation as they could be in a Chapter 7 bankruptcy filing.
Although some people feel embarrassed about considering bankruptcy, eliminating certain debts after making several years of structured payments is often a better option than continuing to struggle financially with no end in sight. Recognizing that many professionals have filed for bankruptcy can inspire some individuals to seek debt relief, when needed, without shame.