New Means Test Data May Burden Many Families
On November 1, 2009, chapter 7 debtors must pass the bankruptcy “means test” using new income figures released by the U.S. Trustee Program. In thirty-two states and the District of Columbia the median income figure for a family of four has decreased. These new figures are not surprising when considering the widespread unemployment and economic hardships our nation has recently faced.
State median income figures are used in the means test to identify debtors who may have the ability to repay some the debts in bankruptcy. When a debtor “fails” the means test by having too much disposable income, the debtor may be denied relief under chapter 7 and must proceed under chapter 13 (a three to five year repayment plan). If a debtor is above the state median income for his or her family size, the chapter 13 repayment plan must last for five years.
The new income figures could make it more difficult for a family in many states to file for chapter 7 bankruptcy protection, or make a debtor’s chapter 13 plan last longer. This added burden seems unfair for families that are struggling with a job loss, or facing a foreclosure due to the economic recession. In most cases the difference is a few hundred to a few thousand dollars annually. The State of Alaska saw the biggest plunge: an income reduction of over $6,000 per year.
If you are contemplating a bankruptcy, speak to an experienced bankruptcy attorney and take the bankruptcy means test. Pass or fail, you have options that your attorney can explain to you.
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