Waukegan Bankruptcy Attorneys: Bankruptcy for People with High Inco...

“Bankruptcy” can be a dirty word.  It means that you don’t have any money and can’t pay anyone, right?  Bankruptcy can actually be a very effective tool for folks with high, regular income.  Let’s look at some hypothetical numbers.  

For example, let’s assume and Joe and Jane Debtor have a combined gross annual income of $120,000, and have two children.  They also have $50,000 in credit card and other unsecured debt, with an average interest rate of 15%.  

Their minimum payment is probably around $1,125 per month to start.  If they make only their minimum payments (interest plus 1%), it will take over forty years to repay the debt, and they will pay almost $62,000 in interest.  If Joe and Jane Debtor wanted to pay off their debt in five years, they would have to pay $1,175 per month.  They would pay about $20,500 in interest. 

What about Chapter 13?  If Joe and Jane Debtor filed a Chapter 13, and paid off their debt in full through the bankruptcy, their monthly payments (including attorney’s fees), would probably be around $950 per month, and they would pay back $0 in interest.  They would save $225 per month, for a total savings of $13,500.  If they invested that money each month in a good savings account at 4% interest, they would have over $15,000 in cash at the end of their bankruptcy.  Their net savings in filing the Chapter 13 would be over $35,000. 

Debt: (at 15% contract interest)

$50,000

$100,000

Chapter 13 monthly payment (100% plan)

$950

$1,875

Minimum payment

(to start, interest +1% minimum)

$1,125

$2,250

Monthly Payment, five year payoff

$1,175

$2,350

 Net Savings

(without interest, Chapter 13 v. 5 year payoff)

$13,500

$28,500

 Let’s look at another example.  Take Joe and Jane’s richer cousins, Jack and Judy.  They have a yearly gross of $200,000 and have $100,000 in credit card debt.  If they file a Chapter 13, their monthly payments would be around $1,875.  If they paid only the monthly minimums, their minimum payment would be $2,250 to start, and it would take them 47 years to pay back the debt.  If they wanted to pay it back directly over 5 years, their monthly payments would be $2,350 per month.