The word bankruptcy makes many people think of financial irresponsibility or business failures. However, if you were to sit in on bankruptcy court hearings, you might realize quickly that the people filing for bankruptcy don’t fit the stereotype.
In fact, a significant percentage of the people filing for bankruptcy will likely be individuals who have excelled in their professions and possibly even run successful businesses. They end up pursuing Chapter 13 bankruptcy as a way of regaining control over their finances after some kind of challenge occurs.
Why would successful professionals need to file for personal bankruptcy?
- High earners tend to carry more debt
Although it may at first seem counterintuitive, there’s plenty of data supporting the claim that successful professionals may have far more debt than middle-class or working-class adults. The more someone earns and the more ambitious their aspirations, the more important it will be for them to project a constant image of success. The pressure to keep up with the proverbial Joneses can contribute substantially to people’s debt levels in the white-collar world.
- Their income is too high for Chapter 7
Perhaps a successful professional suddenly lost their job and fell a few months behind on credit card payments. They may pursue a Chapter 13 bankruptcy because even after multiple weeks of unsuccessful job hunting, their average income over the last six months will still be too high to pass the means test for a faster Chapter 7 bankruptcy.
- Bankruptcy exemptions won’t be enough
Maybe someone has accumulated all of the resources necessary to start a new business. Those assets would be subject to liquidation in a Chapter 7 bankruptcy, setting them back to square one. Although it is possible to preserve some of your possessions in a Chapter 7 bankruptcy, much of your valuable property can be subject to liquidation or sale by the bankruptcy trustee.
A Chapter 13 bankruptcy has no liquidation requirements. Instead, someone makes multiple years of structured payments to their unsecured creditors. You can preserve your assets while still eventually qualifying for a discharge of your remaining unsecured debts.
Recognizing that many successful professionals have used Chapter 13 bankruptcy to start their financial recovery may inspire you to follow their example.