Use the following table to help answer the question below.
| State | Single-Earner | 2-Person | 3-Person | 4-Person |
| :-------- | :------------ | :------- | :------- | :------- |
| Florida | $41,226 | $52,259 | $58,574 | $69,009 |
| Georgia | $40,691 | $55,258 | $61,104 | $68,502 |
| Missouri| $39,645 | $51,568 | $60,371 | $71,059 |
| Texas | $38,940 | $55,859 | $59,222 | $66,381 |
| Virginia| $48,362 | $65,122 | $74,151 | $85,939 |
A couple has two children. They live in Missouri and have a combined annual income of $96,730. The couple has a mortgage, a car loan, student loans, and credit card debt. When one of them loses employment, their monthly income is reduced by $2,100. If they felt the need to file for bankruptcy, which of the following statements is true?
a. They could file for Chapter 7 bankruptcy and discharge all of their debt.
b. They could file for Chapter 7 bankruptcy and discharge most of their debt.
c. They could file for Chapter 13 bankruptcy and discharge all of their debt.
d. They could file for Chapter 13 bankruptcy and discharge some of their debt.
Please select the best answer from the choices provided.
Answer (2)
Calculate the couple's initial monthly income: 12 $96 , 730 = $8 , 060.83 .
Calculate the couple's reduced monthly income: $8 , 060.83 − $2 , 100 = $5 , 960.83 .
Calculate the couple's reduced annual income: $5 , 960.83 × 12 = $71 , 530 .
Compare the reduced annual income to the Missouri 4-person household income threshold ( 71 , 059 ) an dd e t er min e t ha tC ha pt er 13 bank r u pt cy i s t h e m os t s u i t ab l eo pt i o n : \boxed{{\text{d. They could file for Chapter 13 bankruptcy and discharge some of their debt.}}}$
Explanation
Analyzing the Problem First, let's analyze the given information. We have a couple with two children living in Missouri, making them a 4-person household. Their initial combined annual income is $96,730. However, when one of them loses their job, their monthly income decreases by $2,100. We need to determine which bankruptcy option is most suitable for them based on their income and the provided table, which shows income thresholds for different household sizes in various states. The relevant threshold is for a 4-person household in Missouri, which is $71,059.
Calculating Monthly and Annual Incomes Next, we need to calculate their monthly income before and after the job loss. Their initial annual income is 96 , 730 , so t h e i r ini t ia l m o n t h l y in co m e i s : 12 $96 , 730 = $8 , 060.83 $
After one of them loses their job, their monthly income is reduced by 2 , 100 , so t h e i r n e w m o n t h l y in co m e i s : $8 , 060.83 − $2 , 100 = $5 , 960.83 T h e n , w ec a l c u l a t e t h e i r ann u a l in co m e a f t er t h e j o b l oss : $5 , 960.83 × 12 = $71 , 530 $
Comparing Income to Threshold Now, we compare their reduced annual income ($71,530) to the Missouri 4-person household income threshold ($71,059). Their income is slightly above the threshold. Chapter 7 bankruptcy is typically for individuals with income below a certain threshold, allowing them to discharge most of their debt. Chapter 13 bankruptcy is for individuals with higher incomes who can repay their debts over a 3-5 year period.
Determining Bankruptcy Options Since their income is slightly above the threshold for Chapter 7, they might still be eligible, but it's not guaranteed. Chapter 13 is designed for those who can repay some debt over time. Given their debts (mortgage, car loan, student loans, credit card debt), Chapter 13 would allow them to reorganize their debt and make payments over time. Therefore, the most accurate statement is that they could file for Chapter 13 bankruptcy and discharge some of their debt.
Final Answer Therefore, the correct answer is: d. They could file for Chapter 13 bankruptcy and discharge some of their debt.
Examples
Bankruptcy can be a difficult decision, but understanding the different types and eligibility requirements is crucial. For instance, imagine a family facing overwhelming medical bills and job loss. By comparing their income to state-specific thresholds and considering their assets and debts, they can determine whether Chapter 7 (liquidation) or Chapter 13 (repayment plan) bankruptcy is the better option. This decision-making process involves analyzing income, expenses, and debt obligations to find the most suitable path toward financial recovery, much like the scenario we analyzed in the problem.
The couple can file for Chapter 13 bankruptcy due to their income being slightly above the threshold for Chapter 7. This will allow them to manage their debts through a repayment plan over time. Therefore, the correct option is d: They could file for Chapter 13 bankruptcy and discharge some of their debt.
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