The Michigan bankruptcy means test median numbers have decreased again effective November 1, 2012, which means that, for the purposes of the Chapter 7 bankruptcy means test, it will be slightly more difficult to qualify for Chapter 7 bankruptcy in Michigan than it has been in the last couple of quarters. As of November 1, 2012, the median incomes in Michigan for families of various sizes are:
- 1-Family Member Households: $44,116
- 2-Family Member Households: $51,554
- 3-Family Member Households: $60,464
- 4-Family Member Households: $73,366
- More than 4 Family Members: add $7,500 per additional family member to the 4-Family Member median.
What this means exactly for prospective Chapter 7 bankruptcy filings in Michigan is that your household must earn a little less money than prior to November 1, 2012 in order to qualify for Chapter 7 bankruptcy eligibility.
What Does the Bankruptcy Means Test Do & Why?
In 2005, the US Congress implemented a change to the US Bankruptcy Code that was largely drafted by financial institution lobbyists. This Code amendment slipped into the Bankruptcy Code a "means test" for Chapter 7 bankruptcy eligibility. What the "means test" does, essentially, is tell the Bankruptcy Court when you file for Chapter 7 that, based upon your household income (not just yours alone but including every earner in your household), you are or are not eligible for Chapter 7 bankruptcy. The means test is essentially a mathematical formula that averages the gross, pre-tax earnings of all earners in your household for each of the 6 months prior to the month in which you file for bankruptcy. It then averages those 6 months' worth of earnings and then multiplies that average figure by 12 (months) to come up with a annual average household income. It then compares that household income with the median income as listed above for a household of that size. If your household is above that median income, you will not be eligible for a Chapter 7 bankruptcy, even if none of the other earners in your household (for example, your spouse) are filing bankruptcy along with you. For example, if you are married with no children and earning $40,000/year and your spouse earns $20,000/year, you earn a combined $60,000/year. As of November 1, 2012, the median income for a 2-member household will be $44,116. Since $60,000 is more than $44,116, you will not be able to file for Chapter 7 Bankruptcy in this example. That said, the means test is not quite so straightforward. There are further deductions available that can "sink" a household's income back under the median income in order to qualify them for a Chapter 7 bankruptcy. The need for proper application of these deductions is one of the primary reasons why you should considering hiring The Hilla Law Firm, PLLC if you are considering a Chapter 7 bankruptcy rather than attempting to go it alone without experienced legal representation. We are experienced in the intricacies of the means test and will give you your best chance of Chapter 7 eligibility if that is the result you are seeking. "Failure" of the means test does not mean, however, that you are ineligible for bankruptcy of any sort: it means that you are required to file a Chapter 13 bankruptcy instead of a Chapter 7. Chapter 13 is also a highly effective process for dealing with unmanageable debt, particularly if you would like to retain a home that is in danger of foreclosure, so you should not cease examining bankruptcy as a legal option for obtaining a fresh start even if you believe that you would not pass the means test. If you are a Michigan resident, contact us to schedule a free, initial consultation to discuss your eligibility and options for Chapter 7 or Chapter 13 bankruptcy further.