The “Means Test” and its New Median Family Income Amounts

Wasson and ThornhillChapter 7

Qualifying for Chapter 7 bankruptcy requires comparing your income to the new median income amounts just published.

 

Last week we finished a series of about a dozen blog posts related to an every-3-year cost of living adjustment of many of the dollar amounts that are within the bankruptcy statutes. Because inflation during the last few years has been relatively low, these dollar amount increases were modest. (See this notice in the Federal Register.) But they are still important because on the margins they can affect everything from whether you can qualify for bankruptcy, what assets you can keep, what debts you can “discharge” (write off), and how long your case will last. All these changes apply to bankruptcy cases that are filed on or after April 1, 2016.

Besides these every-3-year adjustments, bankruptcy law requires separate cost of living adjustments of the median family income amounts for each state and family size. (See Section 101(39A) of the Bankruptcy Code.) The next one of these median family income adjustments happens also on April 1, 2016. This is the topic of today’s blog post.

The Median Family Income Amounts Matter Because… ?

You qualify to file a Chapter 7 “straight bankruptcy” case with your Louisville bankruptcy lawyer if your income is no more than the median family income amount for your family size and state. If so you immediately pass the “means test.”

Even if your income is somewhat higher you may still pass the “means test.” But that would then depend on whether your income is higher than the amount of your allowed expenses, and how much so. If still too high, whether you pass could depend on the amount of your debts.

So if your actual income amount is no more than the applicable median family income amount you pass the “means test” immediately. Otherwise you may or may not pass once you have to get into these other factors.

If you don’t pass the “means test” you would likely have to proceed instead under a Chapter 13 “adjustment of debts” case. That takes much, much longer—3 to 5 years instead of about 4 months with a Chapter 7 case. And instead of discharging most of your debts that quickly, under chaper13 you’d have to pay what you could afford during that 3-to-5-year span.

And even if you wanted to do a Chapter 13 case in the first place to benefit from its own many advantages, the median family income amount can be very important. If your actual income is no more than you applicable median family income amount, you are obligated to pay into your Chapter 13 plan for no more than 3 years. If your actual income is higher, you are obligated to pay for a full 5 years.

The April 1, 2016 Increases

The median family income amount adjustments are generally done twice a year, once in October or November and then sometime the following February through May. The data gathering is done by the U.S. Census Bureau and also made available for bankruptcy purposes by the U.S. Trustee’s Office (a branch of the U.S. Department of Justice). Here is a table of the ones effective starting April 1, 2016, and of the prior ones effective from November 1, 2015 through March 31, 2016.

For some idea of the median family income amounts, here is a list of them for 8 states, focusing first on the family sizes of a single person, showing the modest increases between these two time periods:

STATE 1 EARNER 1 EARNER
  11/1/15-3/31/16 STARTING 4/1/16
Indiana $43,422 $43,474
Kentucky $41,333 $41,382
Montana $41,692 $41,741
Oregon $47,809 $47,864
Texas $44,178 $44,230
Utah $54,250 $54,314
W. Virg. $43,054 $43,105
Wisconsin $44,764 $44,817

And now here are the same 8 states, focusing now on family sizes of 4 people, again showing the increases between these two time periods:

STATE FAMILY OF 4 FAMILY OF 4
  11/1/15-3/31/16 STARTING 4/1/16
Indiana $74,584 $74,673
Kentucky $69,593 $69,676
Montana $71,261 $71,346
Oregon $76,240 $76,330
Texas $72,612 $72,698
Utah $75,687 $75,777
W. Virg. $67,036 $67,116
Wisconsin $85,859 $85,961

Please see our prior blog posts A “Means Test” Calculation Adjustment and What Is the “Means Test” in a Chapter 7 Bankruptcy? explaining how to apply these median family income amounts to your own income. You’ll get an idea at least whether you can pass the “means test” easily based solely on your income, as to both before and after April 1, 2016.