Now Slightly Easier to Qualify for Chapter 7 Bankruptcy
The Office of the U.S. Trustee, the division of the U.S. Department of Justice that oversees the bankruptcy process in the U.S., has announced the new median income figures for each state that will be in effect as of November 1, 2014 for bankruptcy means test purposes.
New Bankruptcy Means Test Numbers for Michigan
The new median incomes for each household size in Michigan as of November 1st, 2014, are:
- Household of 1: $44,404.00
- Household of 2: $53,640.00
- Household of 3: $62,973.00
- Household of 4: $76,622.00
- Households Above 4: Add $7,500.00 for each additional household member above 4 to the "Household of 4" median number
What Do These Numbers Mean for People Thinking about Bankruptcy?
These median income numbers calculated by the U.S. government are used in the "bankruptcy means test" that determines A) if you "qualify" for a Chapter 7 bankruptcy or B), if you are filing a Chapter 13 bankruptcy, whether you are able to propose merely a 36-months Chapter 13 payment plan or must propose a longer payment plan AND whether there is some minimum amount of money you must repay your creditors in your Chapter 13 bankruptcy payment plan. They are important numbers, in other words! The means test, roughly, averages all of the income that all income-earning members of your household (whether they are part of your bankruptcy filing or not) earn over the 6 months prior to the month in which you file your bankruptcy, then derives an annual household income from that 6-month income average. It then compares that annual income number to the median income number listed above. For Chapter 7 purposes, if you are above the median income, you do not "qualify" for a Chapter 7 and instead must file a Chapter 13 bankruptcy. For Chapter 13 purposes, if you are above the median income, you must file a 60-month (5-year) Chapter 13 plan unless you can repay 100% of your debt in fewer than 60 months, AND there may be some minimum amount of money your unsecured creditors (who are paid last in a Chapter 13 plan) must receive from your plan in order for the plan to be approved by the Bankruptcy Court.
How Do These Numbers Looks Compared to the April 1st, 2014 (Previous) Numbers?
In short, they are not terribly far off from last April's numbers, and, where they do differ, it is not consistent from household size to household size. Review last April's bankruptcy means test numbers here. The median incomes are slightly higher than they were before. This means that, for those households, prospective bankruptcy filers will have a marginally easier time qualifying for Chapter 7 bankruptcy and avoiding mathematical pitfalls in Chapter 13 bankruptcy (there are lots of reasons to opt to file a Chapter 13 bankruptcy even if you do "qualify" for Chapter 7!). Last April, that is, if your household of 2 earned a total of $53,400.00, you would not have qualified for Chapter 7 bankruptcy. As of November 1st, with a median income of $53,640.00 for households of 2, you would.
The Bankruptcy Means Test: The Bottom Line
It is important to remember, however, that the means test is not quite this cut-and-dry. If your household is a little higher than median, a good bankruptcy attorney can, where possible, properly apply various deductions to your income to "sink it down" and qualify you for a Chapter 7—and/or help you avoid some of the costly mathematical pitfalls of Chapter 13 bankruptcy. Online "means test calculators" are garbage and should not be used by lay-people to "self-diagnose" whether you should or should not file a bankruptcy when you could stand to benefit from the enormous financial benefits of the process. Consult an experienced Detroit, Michigan bankruptcy lawyer such as The Hilla Law Firm, PLLC to explore your options with the proper guiding hand. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
If you enjoyed reading "Bankruptcy Means Test Numbers for November 1, 2014," please browse our other articles on our main Michigan Bankruptcy Blog.