Having a decent income does not guarantee the ability to pay all the monthly bills and expenses. If your earnings each month are not enough to keep you afloat, you may want to consider whether filing bankruptcy is an option for you.

If you do not pass the means test, meaning that you make too much money to qualify for a Chapter 7 bankruptcy, you may still be able to find relief through Chapter 13.

The plan

You must inventory all your monthly expenses and income and give this information to your bankruptcy trustee. The goal is for you to pay as many of your debts as you can while still leaving you enough each month to cover your living expenses. Therefore, you will have a repayment plan, and you will make one payment each month to your bankruptcy trustee, who will then apportion the money to your various creditors as the plan dictates. Depending on how much debt you have, you will be making payments for three to five years.

First priority

Which debts get paid and which do not? Secured debts are at the top of the list. These are the debts secured by property such as your home or your car. If you default on a secured debt, the creditor can repossess the item which you purchased with the loan.

Suppose you are already behind on your mortgage payments. Will you be able to keep your house? It is likely. Your repayment plan will include your regular mortgage payment. The trustee will add the amount you are behind on as well, but spread out over the repayment plan. So, if you have missed four payments, that amount will be divided by the number of months of the plan. 

Discharge

Many people are not able to pay back all of their debts over the life of the plan. In this case, when you complete the bankruptcy plan, your remaining debts become discharged. So, you may cease to be liable for your medical bills, credit card accounts, personal loans and other unsecured debts.