It might be natural to think that bankruptcy is only for lower-income people. After all, if you earn a high income, should you not be able to pay your bills?

The reality is that both low-income and high-income people can qualify for bankruptcy. For example, anyone of any income can find themselves struggling with credit card debt and mortgage payments. That said, your income is likely to play a significant role in which type of bankruptcy, Chapter 7 or Chapter 13, that you qualify for.

Chapter 7 for high-income people

To be eligible for Chapter 7 bankruptcy, you must pass a means test that shows your income is less than the state median for your household size. So, even people with extremely high incomes might qualify if they have large households. In Illinois, the median income in 2016 for a household of four people was $86,921, which many folks would consider high-income.

Alternatively, you can still qualify for Chapter 7 even if you “fail” the means test. This occurs when, after deducting ongoing secured expenses such as mortgage payments and car payments from your income, you still do not have enough to repay creditors under a Chapter 13 plan.

So, depending on your household size and/or the cost of your house and other secured assets, you may still have a high income and qualify for Chapter 7. (Note that credit card debt is unsecured, and Chapter 7 should erase most, if not all, of your unsecured debt.)

Chapter 13 for high-income people

In Chapter 13 bankruptcy, you set up a repayment plan for the next three to five years based on what you can afford. Most remaining debts after that window of time runs out are erased, particularly unsecured debts. Your repayment focus is on debts such as child support, taxes, student loan debts and secured debts. After you have paid these debts off, any other leftover income you have goes to unsecured debts such as credit card bills.