Don't Presume High Income Bankruptcy Filers Abuse The System

As unemployment remains above 9 percent and many American families find themselves falling out of the middle-class, some people who don’t understand the bankruptcy system are promoting the idea that high income debtors in bankruptcy are abusing the system. This is a false and dangerous assumption.  Many high income debtors are in similar situations as the middle-class and lower-class bankruptcy debtors – they have more debt than the can handle.

Let’s take the small business owner as an example.  The small business owner may have a home worth $300,000 but have a huge $400,000 mortgage which hangs like an albatross around their neck. They may also have a myriad of unsecured debts such as credit cards and personal loans.  They may have an upside down car loan and college expenses for their kids. Even if the business owner filing bankruptcy earns $100,000, that income can be quickly eviscerated by large debt payments.

Now let’s imagine that the business owner loses huge contracts because the government has cut spending and those companies dependant on government spending can no longer patronize his shop.  This could cut income significantly for the business owner and force him to file bankruptcy.  Many watching the scenario from the outside may say the business owner shouldn’t file bankruptcy, that they should just sell their home or “tighten their budget.”  But the reality is that it can be even more difficult to sell an expensive home and tighten a budget without the help of bankruptcy if you’re a high income debtor.