Saturday, April 16, 2011

Median Income and Bankruptcy

To initially qualify for Chapter 7, a person whose debts are largely consumer related (such as credit cards, medical bills etc.) must have an income that falls below the person’s state median income average.  This does not apply to persons whose debts are NOT primarily consumer debts (such as for example a person whose debts are primarily business related, such as a self-employed person).

Click here for the current chart of state median incomes and remember the $amounts on the chart refer to GROSS income.

Means Testing:  Don't despair if your income falls above the median, as the Bankruptcy Code gives you another opportunity to qualify for a Chapter 7 filing by passing the "means test".  You apply certain National and Local Standards for expenses to your income to determine if after deducting them, you may still qualify.  This can be somewhat complicated and to do this properly may require the assistance of counsel. 

The "means test" is found at 11 U.S.C. Section 707(b)(2) of the Bankruptcy Code summarized here:
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses is more than (i) $11,725, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $7,025. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
[These dollar amounts are adjusted every year, so please be careful when reading articles or definitions on the subject].

But, if you want to at least become familiar with the process, start with National Form B22A (click below)

and then go to

for a listing of the relevant National and Local Standards to apply to your particular case. 

Decisions of courts in your jurisdiction interpreting these Standards also affect how the forms are completed and what information is permissible to include - again, a complicated process.


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