I would love to have this problem.
Today I met with a couple who have four children and earn over $120,000 a year. Their mortgage payment is only $1,200 a month, so the home is more than reasonable, but their credit card debt of over $83,000 is staggering.
The husband is current being sued and has a garnishment pending for 25% of his wages. (In case you’re wondering how to garnish someone, the Utah State Courts have a great “How To” website for garnishment at http://www.utcourts.gov/resources/forms/garnishment/ .
He needs to stop the garnishment but was worried that their overall income was too high to file bankruptcy. In a way it is. They make too much to file a Chapter 7 (absent some amazing expenses like very high child support or alimony). They make $120,000 and the median income for their family size is currently $82,790. They make almost $40,000 above the median income. So even if we filed a Chapter 7, the U.S. Trustee (DOJ) would step in and move to dismiss our case or convert it to a Chapter 13.
This means that we have to file a Chapter 13. Because the husband makes so much money, we have almost $2,000 a month in DMI (disposable monthly income). This means that when we file the case, he will have to pay at least $2,000 a month for 60 months to his creditors, or pay them all off in full, whichever is smaller.
With $83,000 of credit cards over a 60 month plan, the payments end up being around $1,500 a month (with a few extras thrown in). This pays all of their creditors off in full, over a 5 year plan, at 2% interest.
So yes, kind of, they make too much for a chapter 7, but they can still file bankruptcy. It just has to be a chapter 13.
This also means that his paychecks won’t be garnished. 25% of his $8,000 a month take-home would have been $2,000 a month one creditor, with the phone still ringing, legal fees building, and interest accruing. Bankruptcy was a much better option.