Median Income for Future Bankruptcy Filings

In 2005,BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) was passed, which requires that most people will have to apply a “means test” to determine if they are eligible to file a Chapter 7 case. I never recommend you use an online calculator to fill these out because the laws change and the calculator can’t give you the specific advice and first-hand experience in completing the means test. Accuracy on the means test can translate to a difference of thousands of dollars, when calculating how much you would have to pay your unsecured creditors back in a Chapter 13 case, and determines the length of your Chapter 13 plan. There are times when a means test can overstate your income, denying you the opportunity to pay your unsecured creditors nothing in a Chapter 7 case. Thus, if you “pass” the means test, you have the option of filing a Chapter 7 case.¹

One of the most pivotal numbers used for determining whether you pass the means is the average median income for your household size in your state. If your household income (calculated by averaging most sources of income over the last 6 months) is above the average median household income, you’ll need to roll up your sleeves and pay special attention to the means test to see if you still qualify to file a Chapter 7. If your household income is lower than the average median household income, your means test is very easy to complete.

Bad News: as the economy continues to flatten or downturn, the average median household income continues to decline. Thus, the threshold to “pass” the means test is getting lower (and therefore harder) to pass.

I’ll post the new numbers once the US Trustee announces them. These numbers have changed twice a year (around March and November.)

So if your income is close, or even above the median household income for your county, visit a bankruptcy attorney. Our bankruptcy office in Wausau, Wisconsin has the data and experience to guide you through the means test if you plan on filing bankruptcy in Wisconsin (or in limited cases, Colorado.)

Bankruptcy Filing Fees Increase by Seven Bucks

Effective November 1, 2011, the bankruptcy filing fees will increase by $7 dollars.

Therefore, a Chapter 7 filing fee will cost $306 and a Chapter 13 filing fee will cost $281.

Earlier today, the U.S. Supreme Court issued an 8-1 ruling in Ransom v. FIA Card Services, N. A., that will affect how future means testing is done in Chapter 13 bankruptcy cases. The means test is designed to calculate a debtor’s ‘disposable income,’ which is a portion of the monthly plan payment a chapter 13 debtor pays each month to a Chapter 13 trustee. The means test allows certain expenses and deductions to be subtracted from your gross income: the more deductions you can prove and support, the less money will be applied as disposable income. Ransom decided the issue of allowing a deduction for a car that does not have a lease or finance payment.

Wisconsin Courts and the US Trustee offices had been allowing the $496 a month deduction, even through there wasn’t a lien or lease on the vehicle, pursuant to the Ross-Tousey decision. The Ransom decision, issued by the highest court in the land, no longer allows debtors to use the deduction. Bottom line for potential bankruptcy filers: you are better off having a lien on your vehicle, than not, prior to filing a bankruptcy. However, it is not advised that you put a lien on a vehicle for the sole purpose of gaining this deduction, and you should speak with a bankruptcy professional before making such a decision.

The consequences of the Ransom decision increase the potential amount of money that will be paid back to unsecured creditors over the life of a Chapter 13 plan. Thus, the $496 monthly deduction that can no longer be subtracted from your monthly disposable income, translates to almost $30,000 over a 60 month plan, that would be otherwise available for your unsecured creditors.

The means test landscape is constantly shifting, and I won’t be surprised to see changes in how Ransom is applied over time. I’m harboring a solid guess that the US Trustees will rely on the Ransom decision to make it harder for those with above-median incomes to rebut a presumption of abuse when attempting to file a Chapter 7 case instead (by arguing that their expenses and deductions are too onerous to make Chapter 13 plan payments.) For the time being, make certain that your means test is reviewed by a bankruptcy attorney who is familiar with the new case law.

The question we receive is: how do I calculate the means test if I live at home with my parents?

The answer: your parents income will be considered in the “means test” to the extent that they contribute to your living expenses.

The official language is that your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.” 11 U.S.C. 101 Section 101(10A)(B).

Your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.”

What the trustee really wants to know is if you have any disposable income. If you are living at home, expense free, and pull a paycheck for $1,000.00 month, the argument will be that you have $1,000.00 per month that can be paid towards creditors. The expenses regularly paid by your parents would be added to your current monthly income for the purpose of the means test.

The answer applies to all living arrangements outside of marriage, as defined by the U.S. Bankruptcy laws.