Income Test: A Mean Test

Bankruptcy means test meaner again starting November 1, 2012.

Median income fell making bankruptcy means test meaner again for Kansas debtors seeking bankruptcy relief after November 1. All family sizes had drops in income since the May 1, 2012. The largest decreases were $1210 for single earners and $1864 for two-person households.
1 – $41,714  down $1210
2 – $55,698 down $1864
3 – $64,571 down $263
4 – $74,853 down $106
5 – $82,353 down $106
–  add $7500 for each additional person.

This drop in income makes the means test harder to pass for consumer bankruptcy cases filed on or after November 1. Debtors who earn less than the median income pass the means test on the first go around. Debtors who earn more than the median income must go on to round two and complete a complicated analysis of income and expenses to determine if they have disposable income to pay their unsecured creditors at the end of the day. The means test is supposed to tell if a debtor has money left over after living expenses to pay creditors. It says, at least in theory, whether filing a chapter 7 bankruptcy would be abusive or if a chapter 13 payment plan bankruptcy is required.  It also determines if the payment plan must be at least three years or five years.

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New Income Guidelines for Cases Filed On or After March 1, 2010

Income guidelines change again for bankruptcy cases filed on or after March 1, 2010.  Here are the new median income numbers for Kansas:

  1. $41,210
  2. $57,561
  3. $63,212
  4. $72,352

You may still qualify for bankruptcy help if your income exceeds these figures.  Your attorney will fill out the means test for you and determine for bankruptcy options.  Don’t worry – most clients qualify for bankruptcy help.

Congress created a means (income) test to determine which consumer debtors must pay back some or all of their unsecured creditors in bankruptcy. Don’t worry. We have this test figured out. We will determine how this test applies to you.  Almost every client qualifies for some type of bankruptcy help.

If your household income is below the statewide median income, you pass the means test. Most Kansas consumer debtors pass.

But if your household income is above the statewide median income, you use IRS guidelines, not actual expenses, for certain household living expenses to determine if you have excess disposable income to pay your unsecured creditors. So far, most of our clients pass the test at this stage even if they failed the initial stage.

Census Bureau, IRS Data and Administrative Expenses Multipliers

In chapter 7 cases, the means test is calculated on an official form designated Form B22A. If you have excess income, your chapter 7 case may be dismissed for abuse. To avoid dismissal, you may file a chapter 13 case.

In chapter 13 cases, debtors must fill out Form B22C, a different version of the means test. B22C determines the amount to repay unsecured creditors in a chapter 13 plan.

There are many legal arguments over the definition of household, what is income, and what can be deducted to determine if a debtor has disposable income to pay his creditors.

Individual debtors with primarily business debts are not required to pass the means test.  See my post on Bankruptcy Law Network.

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