Livonia Michigan Bankruptcy Means Test Numbers Increase Effective November 1, 2019
Effective November 1, 2019, Michigan's median income numbers for various household sizes are increasing slightly for the bi-annual period from those applicable to the prior bi-annual period.
What does this mean?
It means that, going forward, Chapter 7 bankruptcy will be easier to file in Michigan and that, in Chapter 13 bankruptcy, more people will be able to file a 3-year rather than a 5-year Chapter 13 payment plan.
Livonia Michigan Bankruptcy: What Is The Means Test?
The Means Test is the mathematical formula within the US Bankruptcy Code that determines whether the household of the individual or individuals filing a bankruptcy earns too much money to allow a Chapter 7 bankruptcy filing.
Within the Chapter 13 context, it also determines whether a 3-year rather than a 5-year Chapter 13 payment plan may be proposed by the person filing the bankruptcy.
This post will not discuss those Chapter 13 issues further, but the Means Test does play this role as well.
In other words, the Means Test looks not only at the income of the person filing the bankruptcy but also, potentially, at the income of other people in the household to determine Chapter 7 bankruptcy eligibility.
How Does the Means Test Work?
The Means Test looks at the gross total income of all income-earning household members regardless of whether they are jointly filing the bankruptcy or not for each of the 6 months prior to the month the bankruptcy is filed.
Note that individuals residing under the same physical roof as the prospective debtor would not be "household" members. An example would be a mere roommate. A spouse, on the other hand, would certainly be a "household member" for Means Test purposes.
Note that gross income is calculated rather than net, "take-home" pay. Congress did not want people pumping up their 401(k) or other deductions to slither through the Means Test!
Note that the month in which the bankruptcy is filed is not included; the prior 6 months are. So, if you were filing your bankruptcy in November, 2019, you would be looking at the income earned for the prior 6 months: May 1, 2019 - October 31, 2019.
"Income" includes everything but Social Security benefits and, recently, VA disability benefits.
The Means Test averages the gross income earned within that time-period and then multiples that average by 12 (months) to determine what it thinks your household's average annual income is.
It then compares THAT number with the current median income of a household of the prospective filer's size in Michigan.
If the Means Test annual income average is OVER the median number, the "test" is an initial failure and a Chapter 13 may be required. (A number of deductions which will potentially lower the average income back down under the Median and into Chapter 7 territory actually are applied by your Michigan bankruptcy attorney at this point to determine the final result.)
If the Means Test annual income average is UNDER the median number, the "test" is passed, and a Chapter 7 bankruptcy may be filed.
Livonia Bankruptcy Attorney: What Are the New Means Test Median Income Numbers?
Effective November 1, 2019, Michigan's median income numbers by household size have increased by just under $1,000 for each household size.
The new household averages per size are as follows:
|1 Person||2 People||3 People||4 People|
For each person in the household over 4, you would add $9,000.00 to arrive at the median income amount.
Livonia Bankruptcy Attorney: The Chapter 7 Means Test Bottom Line
The bottom line with regard to the bankruptcy Means Test is to remember 3 things:
- The Means Test is not a "fair" test. It was designed to force people into Chapter 13 bankruptcy, where they must pay something rather than nothing back to their creditors.
- The Means Test is not purely mechanical, despite the above description.
- A lay-person cannot properly calculate the Means Test using any online "calculator."
In short, to properly calculate the Means Test, you need to retain an experienced Michigan bankruptcy attorney who understands not only the available Means Test income deductions but also the state of local Eastern District of Michigan and 6th Circuit case-law regarding these deductions.
The Hilla Law Firm, PLLC has successfully represented hundreds of Chapter 7 and Chapter 13 clients in the Detroit area for more than 10 years.