Bankruptcy Means Test Gets Easier

More Kansans will pass the bankruptcy means test starting April 1, 2017. The income figures used in the bankruptcy formula are rising.

The means test formula uses median income data from U.S. census for Kansas. Telling us who can afford to pay back some of their general debts is the goal of the means test.

Kansas Median Income 4/1/2017

Here are the new median income figures for Kansas households starting April 1, 2017:

$47,591 one earner

$63,327 2 people

$72,981 3 people

$83,528 4 people

*add $8,400 for each individual in excess of 4

The figures rose for each family size.

Most individuals filing for bankruptcy must fill out a form listing their family size and income. About 75% of consumers pass the means test at this stage.

Families with higher incomes must fill out a second form. They subtract actual house and car payments from income then use allowances for living expense deductions.

Bankruptcy Means Test

You are not automatically disqualified. The means test decides what type of bankruptcy you may file. The means test decides how much disposable income is available to pay back general debts such as credit cards and medical bills. (The answer is none for most of our clients.)

The formula for counting income is not simple. Looking at pay stubs is just the start. Unfortunately, the means test is very complicated. We look backwards to calculate income and look forward to project expenses. Some numbers are actual, some are averages off a chart. There are all sorts of adjustments. It is not logical.

We have vast experience calculating means tests. We will do forms and the math for you.

For more information about the bankruptcy means test, you will find all the formulas and technical details on the website for the U.S. Trustee.

 

 

 

 

Kansas Bankruptcy Means Test Changes November 1 – Mixed Message

Up for Some, Down for Others

Mixed Message

Median income figures used for the Kansas bankruptcy means test change again on November 1, 2015. There is a mixed message. Median income for one earner and a household of two goes down while the median income for families of three, four and more goes up.

Kansas Bankruptcy Means Test

Here are the new figures for bankruptcy cases filed in Kansas on or after November 1, 2015:

1 – $45,653 – down

2 – $60,562 – down

3 – $67,349 – up

4 – $80,639 – up

Add $8100 for each additional household member.

Bankruptcy law utilizes a funny way of counting annual income. Don’t worry about doing the calculation on your own. The attorneys at Neis & Michaux are experienced at means test math and will do the figuring for you.

We’ll need from you seven months of pay stubs or a printout for that time period and all other income for seven months. If you have had business income, we’ll need a month by month list of income and expenses to calculate your net income.

The formulas are designed so that 75% of people will be under median income and pass the Kansas bankruptcy means test at the first stage.

What If My Income Is Over Median?

Don’t fret if you think your income exceeds the median income figures in the chart above. It doesn’t mean you aren’t eligible for bankruptcy. It means a long form has to be filled out and various allowances and expenses deducted to learn your disposable income and your ability to pay. We’ll help you with this complicated form too.

We’ve learned from 10 years of experience since the means test was enacted in 2005 that most of our clients pass the Kansas bankruptcy means test. Even those who are required to pay back debt in a chapter 13 bankruptcy pay far less than what they owed before filing for bankruptcy. Help for out of control debt is available.

 

Photo Credit: Rich Anderson

 

Means Test Meaner Again

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.

Most Kansas Debtors Pass Means Test

Don’t despair, the means test is not a problem for most Kansas debtors.  Even for those people who are required to file a chapter 13 payment plan, the payments are usually far, far less than paying all the debt.  The interest, penalties and late fees also stop in most cases. Many times, very little of the general unsecured creditors are paid back in a chapter 13 bankruptcy case. The income figures are based upon census data by family size for your state. The U.S. Trustee Program publishes a table of median income for use in future bankruptcy cases. Official Bankruptcy Form 22A or 22C (Statement of Current Monthly Income and calculations). Bankruptcy Form 22A is the chapter 7 form. Form 22C is the chapter 13 form.

 

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Bankruptcy Means Test Nicer to Kansas Debtors Today

The bankruptcy means test got a little nicer to Kansas debtors today as median income figures rose for cases filed on or after May 1, 2012.

Here is the new median family income by family size for Kansas debtors in bankruptcy:

1 earner $42, 924 (up from $41,611)

2 people $57,562 (up from $55,801)

3 people $64,834 (up from 62,850)

4 people $74,959 (up from $72,665)

add $7,500 for each individual over 4 (same).

This is good news for Kansas debtors in bankruptcy. The increase in the median family income will mean more Kansans will qualify for chapter 7 bankruptcy or will have 3 year chapter 13 payment plans instead of 5 year plans.

Photo credit: LicenseAttribution Some rights reserved by kirstyhall

Kansas Means Test Get Nicer March 15

The bankruptcy means test gets a little nicer to Kansas consumer debtors on March 15, 2011, when new, higher median family income figures go into effect. Kansas families will be allowed to have more gross income to pass the bankruptcy means test on the first round of analysis.

The median family income is used as the first step in determining whether or not a consumer may file a chapter 7 bankruptcy.  If the person’s median family income is below the average income for his state, then he qualifies to be in a chapter 7 without having to do any further analysis of his financial situation. In Chapter 13 bankruptcy, the median family income is used as the first step in determining how much, if any, unsecured debt without priority has to be paid back. Many debtors pay little or no unsecured debt in their chapter 13 repayment plans.  They use chapter 13 as a tool to adjust their debt and manage their financial difficulties in an affordable fashion.

Here are the new means test figures for Kansas bankruptcy cases by household size:

1  $41,654 (up $672)

2  $57,174 (up $923)

3  $64,863 (up $1047)

4  $69,272 (up $1118)

5   $76,772 (up $1118)

6   $84,272 (up $1118)

add $7500 for each additional person.

These figures are to be used for bankruptcy cases filed on or after March 15, 2011.

Topeka Attorneys Observe U.S. Supreme Court Bankruptcy Argument in Lanning

We watched the arguments before the U.S. Supreme Court in Washington, D.C., yesterday in the bankruptcy case of Hamilton v. Lanning.

We are not involved in this case.  We attended as observers.  The case deals with the formula for determining how much a debtor has to pay her general creditors in a chapter 13 bankruptcy payment plan.  You can read the transcript or listen to the recording of the 60 minute hearing.

Jan Hamilton is the chapter 13 bankruptcy trustee in Topeka.  He objected to confirmation of Stephanie Lanning’s chapter 13 plan because she is not proposing to pay the disposable income determined by the means test.  Her previous six months’ income average was extraordinarily high due to two job lump sum severance payments she received in the fifth and sixth months prior to filing her bankruptcy.  She then lost her job and got a new job for less wages.  She cannot afford to pay the amount the means test dictates and proposed to pay less.

The bankruptcy court denied the trustee’s objection and said the means test is a presumption, a starting point, that the court has the discretion to look forward to determine a debtor’s projected disposable income.  The trustee appealed to the U.S. Court of Appeals for the Tenth Circuit, which affirmed.  The U.S. Supreme Court accepted the trustee’s appeal based upon opposing circuit court opinions between the mechanical approach and the forward looking approach.

At the argument, we saw Chief Justice Roberts and Justice Scalia vs. Justice Ginsberg and Justice Sotomayor–strict construction of the means test statute vs. finding an “escape” for this debtor who did not pass the means test because of job buyout and could not afford to pay the means test result.  Justice Alito seemed to share concerns with Justices Ginsberg and Sotomayor.  Justice Thomas, Justice Breyer and Justice Stevens did not ask any questions or make comments.  Justice Kennedy made a brief comment or two.  Justice Scalia evoked laughter a few times.

I was surprised and impressed by the Court’s command of bankruptcy law.  I did not expect that.  (I did not know yesterday that the Espinosa bankruptcy decision would be issued today.)  I am told the Court is hot for argument, meaning they have already read the briefs and taken a preliminary vote, prior to argument.  The Court peppered both sides with questions in a respectful way.  The trustee spoke about 90 seconds before Justice Ginsberg asked the first question.  He got several other minutes of his prepared speech made in spurts here and there and did a two minute rebuttal at the end. The trustee was a better advocate, in my view, but there was sympathy for the debtor’s plight. There also was deference to the government position.

All of the justices who spoke accepted the reset of current monthly income (CMI) period in 11 U.S.C. 101(10) though Justice Ginsberg thought it “odd” and Justice Sotomayor was concerned that debtor could reset CMI by failing to do something she was supposed to do (file I and J).  There was a discussion of judicial discretion.  The questioning Justices were not very interested in the debtor’s options in this case (delaying filing, filing a 7, converting to 7, dismissing and refiling).  Justice Ginsberg said conversion resulted in less money to creditors.  She also said dismissing and refiling was a waste of time and resources.

This case boils down to does the means test statute control or is there an “escape” for a debtor who is victim to a harsh result if the statute controls? Who knows what the result will be.  It is very difficult to tell from the argument.  I left the room thinking the debtor might win, but I know there is strong strict construction sentiment on the Court.

The juxtaposition of the parties was very odd.  It was strange having the government on the side of the debtor against the 13 trustee.  The government position was quite the opposite of the position the U.S. Trustee has taken on many other means test issues.  One has to wonder what would happen if the government was on the trustee side of the case.

Stephanie Lanning was present at the argument of her case.  She was represented by Tom Goldstein of Akin Gump, a veteran Supreme Court litigator. He runs a pro bono project with law students for unrepresented Supreme Court litigants and also publishes the SCOTUS blog.

Mr. Souter, the clerk of the court, also wore a morning coat with the traditional vest and pants.  The court marshal, the first female to hold the office, also wears a morning coat, although she was seated and I did not notice.  The solicitor general was represented by Sarah Harrington.  She wore a morning coat with tails over a skirt.  I am told all participants in SCOTUS arguments used to wear formal attire.  I read today that Elena Kagan, the newly appointed solicitor general and first woman to hold that office, and rumored to be on the short list for appointment to the U.S. Supreme Court, has broken with tradition and appeared before the Court in a dark pants suit.  Other women in her office wear a morning coat at their option.  None of the attorneys in the Lanning case wore formal attire, all were dressed in dark, business suits.

Each side had 30 minutes for argument.  The debtor and government split the time.  I thought the time would go very fast, but it felt like an eternity.  Everyone in the room was excited to be present but the tension was thick.

Clifford White, EOUST executive director, was present as were numerous chapter 13 trustees and other UST personnel.

A larger than normal number of members of the SCOTUS bar were present, I don’t know why.  I would think bankruptcy and tax, the topics of the day, would not be that popular.  Any member of the SCOTUS bar is allowed to come to argument and sit with the bar on a space available basis. NACBA member Dan Press  of Virginia was present.  Mark Neis sat with the bar as did the chapter 13 trustee from Wichita, KS and Gil Weisman of Becket & Lee (eCast attorney).  My daughter and I sat with invited guests right behind the bronze rail.  Each side is allowed six guests.  Hamilton graciously offered us two of his six seats.  He also invited his wife and step-son, Will Griffin, the chapter 13 trustee from Kansas City, Kansas, and the chapter 13 trustee from Maine.  Many people stood in line outside in the rain for the chance to be admitted to observe the argument.

The Courtroom was completely full.  You sit amazingly close to the Justices.  We were on the center aisle about six rows of chairs and two aisles back from the chief justice. Security was very tight and our movement was controlled every step.  We were commanded to remain seated and silent several times.  Hamilton was so close to the justices, he had to physically turn to address the each of them as he was questioned.

Hamilton had a moot court last week at Georgetown Law School before a group of law professors and others from around the area.

Win or lose, Hamilton and his staff attorney, Teresa Rhodd, did a fine job, for which all of us in Kansas can be proud.  They have spent hundreds of hours these past several months preparing.  We were able to find only a half dozen cases from Kansas in the Supreme Court since Brown v. Board of Education in the 1950s.  The Court accepts less than 100 cases per year out of ten thousand or more applications. The odds of a Topeka bankruptcy case before the Supreme Court of the United States is extremely small.

It was a fantastic experience to see an U.S. Supreme Court argument live.   I would recommend it to all of you.

Bankruptcy Means Test Meaner as Family Incomes Drop

As the economy worsens, unemployment rises and family incomes are dropping, getting bankruptcy help gets a little tougher.

The bankruptcy income guidelines go down a few hundred dollars for Kansas cases filed on or after March 15, 2010.  While this change probably won’t disqualify many debtors, the downward trend is disturbing and more evidence the means test is a mean test.

Here are the new Kansas median income figures by family size used for part one of a two part-test to determine bankruptcy eligibility:

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

But do not despair if your income is higher than these numbers and you need bankruptcy help.  You are not automatically disqualified. These numbers are used in part one of the means test to figure out whether Kansans may get rid of their general debts such as credit cards and medical bills in bankruptcy.

You have a second chance to pass the bankruptcy means test [Read more…]

Surrendered Collateral Doesn’t Count on Bankruptcy Means Test?

22C EXPENSE NOT PERMITTED ON SURRENDERED COLLATERAL
In re Miller, Case No. 07-22927
December 2008, Judge Somers
This decision ties to the concepts enunciated in the various Lanning decisions, i.e., to
what extent may post petition changes in circumstances be considered in determining
what is to be paid by an above the line debtor.  Digest by Jan Hamilton, Trustee.

Income and Expenses After Bankruptcy Change Chapter 13 Means Test

REITERATION THAT INCOME AND EXPENSE CHANGES MAY BE
CONSIDERED POST PETITION IN 13.

In re Tholl, Case No. 07-22677
December 2008, Judge Somers
Court reviewed and followed the Melvin decision regarding changes of income and expenses after the filing of the chapter 13 bankruptcy but prior to confirmation of the chapter 13 bankruptcy plan.

Deviation from Bankruptcy Means Test for Expenses, Too

LANNING EXTENDED TO EXPENSE SIDE
In re Melvin, Case No. 07-22352
December 2008 Judge Somers

Court extended the Lanning analysis and found there was no binding precedent on the issue of whether actual of 22C expenses were mandated and found that 22C expenses may be deviated from also. This is consistent with dicta in Lanning, and Judge Nugent in In Re Hoss, 08-10365, and In re Arroyo, No. 07-12779. It may also be inconsistent with Judge Karlin in the bankruptcy court decision in Lanning.

Lanning has been appealed by the bankruptcy trustee and is currently pending in the U.S. Supreme Court.  Oral argument is expected in March 2010.

Digest by:  Jan Hamilton, Trustee

How Do I Deduct My Non-Filing Spouse’s Expenses on the Bankruptcy Means Test?

HOW EXACTLY DO WE DEDUCT ‘MARITAL ADJUSTMENTS’?
In re Dugan, Case No. 07-40899
August, 2008, Judge Karlin
Chapter 13 Trustee objections to debtor’s attempts to include a marital adjustment on Lines 13
and 19 for a non-filing spouse and a deduction for transportation expenses. Court
allowed, in theory, the marital deduction, but found it had not been supported with any
detail. Debtor was given time to provide documentation. Digest by Jan Hamilton Trustee.

Cram Down Value Used for Means Test in Wichita Bankruptcies

A DEBTOR MUST USE THE STRIPPED/CRAMMED DOWN AMOUNT FOR
PURPOSES OF CURRENT MONTHLY INCOME (CMI) ON LINE 47 OF B22C
In re Hoss, Case No. 08-10365
In re Arroyo, Case No. 07-12779
August 2008, Judge Nugent
In above median income (AMI) cases, debtors sought to deduct contract payments, rather than the stripped off/crammed down amounts. The Court sustained the Chapter 13 Trustee’s objection to confirmation. This is a good analysis of the status of the law, as of the date of the issuance of the opinion. Judge Nugent applied the reasoning of Lanning, but on the expense side, rather than the income side, of the equation. He also disagreed with Judge Karlin’s decision in Allen, which would have reached an opposite result.

401(k) Withdrawal Is Income for Means Test

401(K) DISBURSEMENT PRE PETITION IS CURRENT MONTHLY INCOME BUT NOT PROJECTED DISPOSBLE INCOME
In re DeThample, Case No 07-11829
July 5, 2008, Judge Nugent

Under 1325(b)(1)(B), a singular, one time disbursement is “income” for purposes of
determining Current Monthly Income (CMI), but followed Judge Karlin’s Lanning decision in determining what constituted Projected Disposable Income (PDI). This is a good read of the status of the law in
this area of its date of issuance, according to a digest of the case by Jan Hamilton, Trustee.

U.S. Supreme Court Takes Topeka Bankruptcy Case

A Topeka, Kansas, consumer bankruptcy case is pending in the U.S. Supreme Court. It involves the Topeka chapter 13 trustee objecting to Stephanie Lanning’s bankruptcy plan.

Lanning had taken a buyout and left her job at Payless Shoesource.  She was working at Joann’s Fabrics for less money when her bankruptcy was filed.

When Lanning took the bankruptcy means test, the Payless buyout caused her income average to be higher than her current income and higher than the median for a single person in Kansas.  She would have been required to make a bankruptcy payment she could not afford to make with her lower income. [Read more…]

Means Test Allowances

U.S. Trustee on means testing

national expense_standards for means test

Kansas housing charts for means test

Out of Date Means Test Guidelines

Out of Date Means Test Income Guidelines

New Income Guidelines After Halloween

Here are the new Kansas means test income figures for cases filed on or after November 1, 2009:

  1. one earner household $41,357 (up $353)
  2. two person household $57,767 (up $1621)
  3. three person household $63,438 (up $193)
  4. four person household $72,610 (down $2016)
  5. add $6900 for each individual in the household in excess of four.

Income Guidelines for Cases Filed on or after March 15, 2009, through October 31, 2009

The Kansas median income has increased giving debtors a raise on the bankruptcy means test for cases filed on or after March 15, 2009.  The new figures by family size are:

  • one earner    $41,004
  • two people    $56,146
  • three people $63,245
  • four people   $74,626

* Add $6,900 for each individual in excess of 4.

Guidelines for Cases File on or after October 1, 2008, but before March 15, 2009, see below

Here are the bankruptcy income guidelines that went into effect October 1, 2008:

  • 1 earner                       $39,488
  • 2-person families    $54,070
  • 3-person families    $60,906
  • 4-person families    $71,867
  • 5-person families    $68,548
  • 6-person families    $63,075
  • Add $6,900 for each additional individual
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