Tax Changes Mean Bankruptcy Changes

Platinum Law Group and David Gomez have helped many people with estate planning and bankruptcy law issues. From their offices in Baltimore, David Gomez and Platinum Law Group enable people to erase their debt and get their financial lives back on track.

Changes in the tax code in 2018 affect the way individuals file bankruptcy, especially those with high incomes. High earners stand to receive a significant tax cut, which can affect their deduction on the bankruptcy “means test” and free more income to pay creditors.

The bankruptcy means test tells the government the amount of disposable income a filer can pay to creditors. People with little or no disposable income can often file Chapter 7 bankruptcy, which is more forgiving than Chapter 13 bankruptcy. 

In Chapter 13 bankruptcy, disposable income is put toward a payment plan but can be reduced further by certain deductions. These deductions will also be reduced by the new tax plan.

As a result, high earners filing for bankruptcy are more likely to need to file Chapter 13 instead of Chapter 7. Chapter 13 filers will also likely end up paying more on their bankruptcy payment plans. People below the median income, however, should experience little change in the way they file bankruptcy.