Chapter 7 Bankruptcy Easier for Livonia Michigan Residents as of April 1, 2020
The Bankruptcy Means test is a mathematical formula that determines whether or not a person filing for bankruptcy is eligible for a Chapter 7 "discharge it all without paying anything back" bankruptcy or must file a "pay what you can over 3-5 years" Chapter 13 bankruptcy.
The Means Test also determines, in a Chapter 13 bankruptcy, whether a person can propose a 3-year Chapter 13 payment plan or must file a 5-year payment plan—and whether there is some minimum amount of money that the person's creditors must receive from the payment plan (as opposed to the nothing ordinarily required).
In short, the bankruptcy Means Test is pretty important.
It is also not designed to be "fair" in any way. Its purpose as implemented in 2005 by corporate-friendly members of Congress and then-President Bush is to force people into Chapter 13 bankruptcy, where they pay something back to creditors rather than the nothing repaid in a Chapter 7—and then to force them, on occasion, to pay more back than they otherwise might.
How Does the Bankruptcy Means Test Work?
The Means Test averages the gross income of every person in the prospective bankruptcy filer's household for each of the 6 months prior to the month in which the bankruptcy is filed. Thus, if the bankruptcy were being filed in July of a given year, the Means Test would look at income earned from January through June.
It does not matter if a wage-earning spouse or other household member is not filing the bankruptcy jointly with the prospective bankruptcy filer; that spouse's income is included.
So, if the filer earns minimum wage but his or her spouse is the CEO of IBM, that is going to disqualify the filer from Chapter 7 bankruptcy.
The Means Test then averages this 6-month's worth of income, multiplies that average by 12 (months) to arrive at what the Means Test thinks is the filer's annual household (gross) income.
If that annual income figure is higher than the median income average in that person's state for that person's household size, they are likely to be eligible only for Chapter 13 bankruptcy.
If they are under the state median income for their household size, they are eligible for Chapter 7 bankruptcy.
The median income figures for each state in the US are recalculated by the US Trustee Program at the Department of Justice each year on April 1st and November 1st.
Michigan Median Income Numbers for April 1, 2020
When state median income numbers rise, that means that a household can earn more money and still qualify for Chapter 7 bankruptcy.
On April 1, 2020, Michigan's median household income averages rose slightly.
The new numbers are:
|HH Size 1||HH Size 2||HH Size 3||HH Size 4|
("HH" = "household")
For each household member above 4, you would add $9,000.00 to arrive at the median income for a household of that size.
Livonia Michigan Bankruptcy Attorney: The Bottom Line Regarding the Means Test
The bottom line regarding the Chapter 7 bankruptcy Means Test is that, if you are considering filing for bankruptcy, relying on the information on this page or any other online source for determination of whether or not you "pass" the Means Test, is a mistake.
You need to seek the advice of an experienced Michigan bankruptcy lawyer such as John Hilla of The Hilla Law Firm.
We have guided hundreds of clients successfully through the Means Test.
To schedule an initial consultation, please complete the form to the right of this page or call us at (734) 743-1489.