Most people who file bankruptcy have a household income of $50,000 to $100,000 per year. They are stuck in the bankruptcy box. The reason is that if those households make enough money to have protectable assets, but not enough money to survive an unexpected financial hardship.
You see, if people have very little income they are what is called "judgment proof." Judgment proof means that even though a creditor can get a judgment against a debtor, there is nothing to seize from the debtor. If there is nothing to seize then a debtor is judgment proof, i.e. the judgment is uncollectible. At the opposite end of the spectrum are households with more than $100,000 income per year. If a household has more than $100,000 per year, then it is more likely that it will have sufficient savings to get through a rough patch.
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The bankruptcy box is an important concept for people to understand, because it really determines how and what your bankruptcy lawyer can do for you. Families in this group usually own their own home, have picked out a career, have at least some college education, and have financial goals. This means that these families are not looking for a bankruptcy lawyer that can just run them through bankruptcy. They need a bankruptcy lawyer that can help them get back on their feet. Additionally, these families have often gone through an income interruption, which is why they are filing bankruptcy.
The first thing to look at is whether they own a home and can afford to keep it. Chapter 13 bankruptcy foreclosure relief is possible, but it really depends on how far behind the family is on their mortgage. With an income below $100,000 per year, it is often difficult for a family to catch up on a mortgage in a chapter 13. If an impending foreclosure is the reason they are in distress, a good lawyer should look at non-bankruptcy options like mortgage modification. The flip side of this is that if a family needs to get rid of a house, their income is usually still low enough after deductions for them to pass the Means Test and file chapter 7.
In short, a bankruptcy lawyer will find that most of their clients are stuck in the bankruptcy box. In order to help a family that makes between $50,000 and $100,000 per year, it is necessary to understand that they make enough to have long-term financial goals, but that they do not make enough to ride out a financial storm. The decision to file a chapter 7 or a chapter 13 should be tailored to that understanding.
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