Some Larger Households about to Have Shorter Chapter 13 Cases

Wasson and ThornhillChanges in Bankruptcy Law

Households larger than 4 people can soon qualify for a 3-year, shorter Chapter 13 case instead of a 5-year one, even with a bit more income.

 

How could it be that larger families can have shorter Chapter 13 “adjustment of debts” cases?

The reason is that on April 1, 2016—as happens every 3 years—there will be a modest increase in the “median family income” calculation for “a debtor in a household exceeding 4 individuals.” This matters because whether your Chapter 13 case filed through your Louisville bankruptcy lawyer can last 3 years or instead must go for 5 years depends whether your “current monthly income” is more than the published “median family income” amounts for your size of family in your state.

If your “current monthly income” is not more than the published “median family income” then your Chapter 13 case is not required to go longer than 3 years. If it is more, then your case is required to go 5 years.

We explain the upcoming change in the rest of this blog post, and why it only affects “households exceeding 4 individuals.”

Two Different Adjustments Happen in Tandem

This can get confusing because there’s another much more frequent “median family income” adjustment besides the April 1 every-3-year adjustment just affecting households of larger than 4. The published “median family income” amounts affecting every state and ALL household sizes are adjusted much more often—usually about 2 or 3 times a year. As of this writing the most recent across the board adjustments of this type were made effective November 1, 2015 and May 15, 2015.

“Median Family Income” for Households Larger than 4

But these more regularly updated “median family income” amounts only directly refer to household sizes of from 1 to 4 individuals. For larger households, you add a stated dollar amount for each additional individual in the household to come up with the appropriate “median family income” for the household. This monthly additional dollar amount per additional household member was $525 when the law on this was passed in 2005, and has been increasing every 3 years since then. For the last 3 years this amount to add for each additional household member was $675. On April 1 this amount is increasing to $700 more for each additional household member.

On an annual basis, this in an increase in the “median family income” from $8,100 per additional individual ($675 times 12) to $8,400 per additional individual ($700 times 12).

How This Works

If the published annual “median family income” for a household of 4 is $60,000, then before April 1 that amount for a household of 5 would have been $68,100 (which is $60,000 + $8,100). As of April 1 that amount would increase to $68,400 ($60,000 +$8,400). A small increase. But if it makes the difference between paying a Chapter 13 plan for 3 years instead of 5 years, that would be a huge difference.