November 25, 2017

Free Tool to Calculate Your Median Income for Bankruptcy Purposes

median income test calculatorAs you probably know, your eligibility for bankruptcy protection is determined in part by your household income.  The Bankruptcy Code requires us to calculate your median income by looking at gross income earned by you, your spouse and any other working member of your household during the 6 months preceding the current month.  We add up all the income and divide by 6 to arrive at a number.  We then compare than number to a median income table provided to us by the Census Bureau and the United States Trustee’s office.  This calculation is called the “median income test.”

If you are over median, then a presumption of abuse arises as to your eligibility for Chapter 7 and we must proceed to perform additional calculations (these additional calculations are called the “means test.”).

The addition of the median income and the means test to the consumer bankruptcy process has made bankruptcy a lot more complicated both for lawyers and for individuals.  I know several lawyers here in the Atlanta area who used to handle bankruptcy cases, but no longer do so because of the complexity of the median income/means test process.  I personally think it is absurd that bankruptcy has become so complicated that a reasonably intelligent person would have almost no chance at figuring out the calculations.  If there was ever a reason to avoid non-lawyer “petition preparers” this would be it.

Click on the link to see the current median income table for Georgia.

File Your Bankruptcy by the End of the Month or Start the Process Over

If you read this blog and other consumer bankruptcy blogs like Scott Riddle’s Georgia Bankruptcy blog or the Bankruptcy Law Network blog, you know that preparing for filing a case involves a great deal of effort on your part to collect information and documents.  Are there any steps that you as the potential bankruptcy debtor can take to speed up the process and to keep costs down.

My Bankruptcy Law Network colleague, Michael Doan, has posted a very useful article about the timing of filing.  Specifically, Michael points out that if you start the bankruptcy information gathering process towards the end of a month, and the process rolls over to the next month, then a lot of the work has to be redone.  For example, the six month medican income test look back would involve a new six month period, your credit counseling certificate validity date may run out and the required tax return might change.  I encourage you to take a look at Michael’s well thought out post entitled "File by the End of the Month or Start Over."

I think that in a big picture sense, what Michael is saying is that you need to communicate regularly and accurately with your lawyer.  If you meet with your lawyer on the 20th of the month and promise to have all necessary documentation by the 27th, but you end up rescheduling your appointment to the 5th of the following month, don’t be surprised if you have to pay a higher fee to account for all the new calculations.

In my practice, I do not start the time consuming process of analyzing pay stubs and figuring out the median income and/or means test until I have pretty much all of the required documentation.  This means that I can’t give my client bottom line numbers unless and until my client provides me with pay stubs and tax returns.  I can still give a "big picture" analysis based on my experience, but the actual number crunching has to wait.   This is a major shift from pre-BAPCPA practice where I could run numbers almost immediately.

Some of my colleagues are more willing to tolerate the risk of not getting documentation in time and they end up running their calculations two or three times.  If you are a lawyer and this is how you have set up your practice, I would advise you to keep your notes so at least your’ll have a head start on the calculations.

How Does My “Stimulus Package” Check Affect My Bankruptcy

I have received several emails over the past few weeks asking about the impact of the $600 to $1,200 check that many of us will receive in May as part of the Bush stimulus package.   My colleague, Dana Wilkenson explains the impact in her post on the Bankruptcy Law Network blog:

If you are already in a bankruptcy, the tax rebate may have no affect on you at all. If you are planning to file a bankruptcy in the next few weeks, before you receive your rebate, the tax rebate is a potential asset that should be listed on your bankruptcy paperwork. If you are filing a Chapter 7 case, you may be required to turn all or part of the rebate over to your Chapter 7 trustee, unless it can be claimed as exempt under the laws applicable in your jurisdiction. In a Chapter 13, it may be a small part of calculating your payment to the trustee. Consult with your attorney about what to do with the tax rebate when you receive it.

If you file a bankruptcy in the six months after you receive your tax rebate, the rebate will be added to your other income for purposes of the means test. The tax rebate is supposed to arrive in May, shortly after most people receive their normal tax refund. If the numbers in your means test are close, it may be that the tax rebate (especially if combined with a tax refund at about the same time) will be enough to change the outcome. Many times such a problem can be resolved simply by waiting to file your case, but if you have a pending foreclosure or other legal action, you may not have that luxury.

What if your Chapter 13 plan provides that all tax refunds are to be paid to the Chapter 13 trustee?  I have not heard anything directly from the trustee but I suspect that the Chapter 13 trustee will have his/her hand out.  I will see if I can ferret out the trustee’s position prior to May – I wonder if one could amend his/her petition to declare the $600 or $1,200 check exempt pursuant to any unused exemption.

I certainly hope that Chapter 13 trustees can be persuaded to forego any seizure of the Bush economic stimulus checks.  The purpose of this rebate is to help the economy by boosting consumer spending – it seems to me that given how difficult bankruptcy budgets are to maintain it would be nice to give bankruptcy debtors a little breathing room.

New Median Income Numbers for Georgia Bankruptcy Filers on February 1, 2008

The United States Trustee has released the new median income table for Georgia debtors, applicable to cases filed February 1, 2008 and thereafter:

 

February, 2008 Median Income Numbers for Georgia

 

1 person household2 person  household3 person household4 person household
$39,171$51,425$58,885$68,611

Chapter 7 and Middle Class Debtors

Over the past few weeks, I have received several emails from potential clients that begin with lines like “my salary is over $100,000 and I need to file Chapter 7 to protect myself against lawsuits from credit card companies” or “together, my wife and I earn well over $100,000 but we need to file Chapter 7 because….”

In each of these cases, I have had to respond to the prospective client with the bad news that about 99% of the time, Chapter 7 is not going to be available to an individual or couple whose household income exceeds $100,000.   Why?  Under the current bankruptcy law, something called a “presumption of abuse” arises is your gross household income exceeds the “median income” for a similarly sized family in the State where you live.

In Georgia, where I practice, the median income for a family of 4 is $66,711.  If there are more than 4 people in a household, you would add $6,900.  If you make $100,000, you would need a family of 9 to fit within the median.  Note that these figures will be adjusted upward as of January 1, 2008 but the general principle here still applies.

If you do not meet the median income test, you could still qualify for Chapter 7 under something called a “means test” which allows you to deduct certain permitted expenses from your median income figure.  Unfortunately the means test is derived from IRS calculations used when people negotiate installment payments on overdue tax debt.  In other words, you don’t get a lot of deductions.

As a practical matter, you might squeeze into a Chapter 7 if your income is just over the median, but if you are $20,000 or $30,000 over the median, you are facing a real uphill battle.

If you don’t fit into a Chapter 7, your only alternative is Chapter 13.   Here, too, the $100,000 income family is likely to feel a squeeze.  My experience with the means test suggests that families the $70,000 to $100,000 range won’t qualify for Chapter 7, and the means test will require a Chapter 13 payment that often is not affordable.

Over the next few weeks, I’ll be working on a video presentation that will demonstrate how the means test works.

Can I File Bankruptcy Without Involving My Spouse?

married person can file individual bankruptcyIf you are married, can you file an individual Chapter 7 or Chapter 13 and not include your spouse?

Yes you can.  Regardless of whether you are married or separated, you can file bankruptcy on your own even if  your spouse does not want to cooperate.   Further, you non-filing spouse’s credit will not be damaged by your bankruptcy filing,  unless there are joint debts that end up not getting paid in your case.

If you are married, however, your non-filing spouse’s income and expense information, and possible his/her asset information may be relevant to your case and may have to be revealed.

The bankruptcy law requires us to consider household income, which means that your spouse’s income has to be considered.   The law assumes that two people living together as husband and wife both contribute to the household 1   If, however, you and your spouse have separated out your income and expense obligations, we can make an argument that some or all of your spouse’s income or expenses should not be counted in your case.

While filing jointly with your spouse is not required, it can sometimes make a lot of sense.  I often run “what if” scenarios with potential clients and their skeptical spouses to reveal the benefits and the downsides to a joint filing. [Read more…]

  1. By the way, Georgia is not a community property State.  For those of you who live in community property States, the analysis I am describing may not apply.   My Bankruptcy Law Network colleague Cathy Moran writes often about community property issues and bankruptcy on the BLN blog.

Am I Allowed to Include in my Means Test Calculation an Allocation for Payments to Secured Creditors When I am Surrendering the Collateral?

Thans to Judge Homer Drake, we have an answer to this question in the Northern District of Georgia.  In the Walker case (2006 Bankr. LEXIS 845, Case No. 05-15010 (Bankr. N.D. Ga. May 1, 2006), Judge Drake overruled an objection by the U.S. Trustee.  In this case, the debtor’s Chapter 7 Statement of Intentions provided for the surrender of his house and vehicle.  The Means Test filed by the debtor had allocations for payments to both the mortgage and vehicle lenders.  The Trustee objected to the inclusion of these allocations when the debtor intended to surrender the collateral.

Judge Drake found that the Means Test was intended as a snapshot of the debtor’s financial situation at the instant of filing and that at the time of filing, these payments were contractually due to the lenders.  Further, Judge Drake found that since the Means Test could potentially penalize the debtor by using a six month look back as evidence of future income then the Means Test is by its nature is not intended to reflect the debtor’s current reality.

Judge Drake also noted that the trustee can still object to discharge under Section 707(b)(3) which allows the Court to consider the totality of the circumstances.

You can read more about Judge Drake’s decision at the blog post on Scott Riddle’s Georgia Bankruptcy Law Blog.

Bankruptcy process to become even more burdensome to low income debtors?

NACBA (National Association of Consumer Bankruptcy Attorneys) recently distributed a letter from Senators Chuck Grassley and Jeff Sessions to Justice John Roberts, the Chief Justice of the United States.  The Chief Justice is the head of the Committee on Practice and Procedure of the Judicial Conference.  This Committee is the organization that drafts and revises the official bankruptcy forms that must be used in the nation’s bankruptcy courts.

In this letter, Senators Grassley and Sessions express dismay that the forms created after the enactment of the new law do not require low income debtors to complete extensive financial disclosures.

Currently, debtors whose incomes fall below the average income for their State of residence do not need to fill out around 10 pages of forms – presumably if their income is below the State average, they are not abusing the process.

As a practicing lawyer who sees struggling debtors on a regular basis, I find this mean spirited letter by Senators Grassley and Sessions disturbing.  In my view, the only impact that these proposed rule changes would have would be to drive up the cost of bankruptcy.  We have already seen the filing fee jump from $194 to $299 in Chapter 7.  Attorneys fees charged by most debtor’s lawyers have gone up dramatically because the new law imposes significant and burdensome filing requirements.  And the credit counseling requirements of the new law require cash strapped debtors to spend at least an extra $100 to get their two certificates.

Fifteen years ago, I was charging $600 total for a Chapter 7, including the filing fee.  Now, if you want a decent lawyer, you are looking at close to $2,000 for the same service.

I wonder if Senators Grassley or Sessions have ever spent a day with a debtor’s lawyer talking to the distraught families who have made the difficult decision to file for bankruptcy.  Or have they spent a day in the 341 hearing room listening to debtor after debtor testify about financial hardship brought about by job loss, divorce or illness.  Or have they watched a Motion for Relief calendar where bankruptcy judges have had to tell mothers and fathers that they will be losing their homes.

Every responsible lawyer and citizen should want honesty and integrity in the bankruptcy process.  Study after study has shown that most bankruptcy debtors are not abusing the system.  It strikes me as the epitome of hypocrisy that a Congress who squanders billions of our tax dollars would take such an interest in solving a problem that does not exist when its own house is not clean.

Interestingly, the Citizens Against Government Waste awarded Senator Grassley its Porker of the Month in May, 2005 for adding $11 billion to a transportation bill.

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