Non Bankruptcy Options

Hello, this is Roger Ghai and I practice bankruptcy law in the Kennesaw, Marietta and Acworth areas. I wanted to speak this morning about what happens if you want to file a chapter seven case, but you don’t qualify and you just don’t want to file a chapter 13 bankruptcy repayment plan. Well, you might not qualify for filing a chapter seven bankruptcy case for several reasons. The first reason of course would be that maybe you and your wife both have income into the household and she’s not filing the bankruptcy case with you, but in the eyes of the law, the household income is considered for the purpose of determining whether you can file a bankruptcy case. So depending on the circumstance, we might have to do a timing of your bankruptcy case to make sure that you can qualify for chapter seven and get a fresh financial start.
So in the past, I’ve had a case or cases where I’ve actually had to advise one spouse to stop working. The reason for this, I’ll give you an example, is let’s say for example that there was credit card debt of $110,000 or $120,000, which actually I’ve had cases like that, and then there was joint household income, which would preclude one party from filing the bankruptcy case. But if we had less household income, then what would happen is that over the course of time, maybe six months, if the other party stopped working for four or five months, then we can go ahead and file a bankruptcy case legally, ethically, and then get rid of the $100,000 or so of debt.
Now, the reason that we would want to do this is this, if let’s say you’ve got $100,000 or $120,000 a year trying to get rid of, okay, that’s a lot of money. So to get rid of that debt or to repay that debt really from an income perspective, you have to earn maybe $160,000, $170,000 just to repay that $120,000. Probably more likely you’re going to have to earn about $180,000 to pay the $120,000. And it could be more. So does it make sense for the non-filing spouse to continue working and making $50,000 a year or $70,000 a year, and then having to continue to do that for year after year after year in order to pay the $180,000 or $120,000 of debt?
So, no, it really doesn’t. And so a lot of times, although it sounds terrible to advise a client like that, for one party to quit their employment, it actually benefits the family overall in the longterm because if the spouse continues to work for $50,000 a year, and you’ve got the debt of $120,000 that you’re trying to get rid of, even though the spouse is earning $50,000 a year, it’s not the whole $50,000 that they’re going to be able to apply toward that $120,000 worth of debt because they have to pay income tax on that $50,000 that they’re earning.
So maybe they’re actually only netting $40,000 at best or $30,000, $35,000 at best. So if you’re netting $35,000 a year and then you’ve got $120,000 worth of debt, basically, the person has to continue working for about four years and applying every single penny of that $35,000 to the debt, not including interest, to be able to eliminate the debt, versus if the person just stops their employment for a while, four or five, six months, we can file the bankruptcy case, they can find another job and then the family can be debt free.
So if you have questions about the timing of the filing of the bankruptcy and other matters like that, feel free to give me a call at 7707921000.