The median income in your state affects your ability to file for Chapter 7 bankruptcy.
The Chapter 7 "means test" employs a two-step process to determine whether or not you are eligible to file for Chapter 7 bankruptcy. If you don't "pass" the means test, then you cannot file for Chapter 7 bankruptcy, although you can still file for Chapter 13 bankruptcy if you're otherwise qualified.
The first step in the means testing process compares your income to your state's median income for a family the same size as yours.
If your income is below the median income for your family size, there is no "presumption of abuse" and you can file for Chapter 7 bankruptcy. However, if your income is higher than the applicable median income, a more complicated calculation process is required to determine whether or not you can file under Chapter 7.
The median income used for Chapter 7 eligibility calculations is changing
The U.S. Census Bureau recently released new median income figures, and the U.S. Trustee will adopt these changes for all Chapter 7 bankruptcy cases filed on or after October 1, 2006.
The median income for some family sizes in some states has decreased dramatically. That decrease will mean that many more people who want to file for Chapter 7 bankruptcy will now be subjected to the second stage of the means test, and possibly prevented from filing bankruptcy under Chapter 7.
To find out how these changes may impact you, consult a local bankruptcy attorney.
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The states most dramatically affected are:
Washington, D.C.: the median incomes for 2 person families has declined by approximately $10,000, with similar decreases for 3 and 4 person families
New Hampshire: the median income for a single wage earner has decreased by more than $6,500, while the median for 2 person families has declined by more than $4,000, and the median income for 4 person families by about $3,000
Idaho: the median income for 4 person families has declined by more than $5,000
Mississippi: the median income for 4 person families has decreased by nearly $4,000
These are some of the most significant changes, but the median income for at least one family size has declined in 39 states, including:
- Connecticut (1 and 2 person)
- Delaware (3 person)
- District of Columbia (1, 2, 3 and 4 person)
- Florida (1, 2 and 3 person)
- Hawaii (1 and 2 person)
- Idaho (3 and 4 person)
- Illinois (1, 2, 3, and 4 person)
- Indiana (2 and 4 person)
- Kansas (1, 2 and 3 person)
- Kentucky (1 and 4 person)
- Louisiana (2 and 3 person)
- Maine (1, 2 and 4 person)
- Massachusetts (3 and 4 person)
- Michigan (1 and 3 person)
- Minnesota (2 person)
- Mississippi (1 and 4 person)
- Missouri (1, 2 and 4 person)
- Nevada (3 and 4 person)
- New Hampshire (1, 2, 3 and 4 person)
- New Jersey (1, 3 and 4 person)
- New Mexico (4 person)
- North Carolina (1 and 3 person)
- North Dakota (1, 2 and 4 person)
- Ohio (3 person)
- Oklahoma (2 and 3 person)
- Oregon (3 person)
- Pennsylvania (3 and 4 person)
- South Carolina (1, 2, 3 and 4 person)
- South Dakota (1 and 4 person)
- Tennessee (1, 2 and 4 person)
- Texas (1, 2, 3 and 4 person)
- Utah (1 and 4 person)
- Vermont (1 and 2 person)
- Washington (3 and 4 person)
- West Virginia (1, 3 and 4 person)
- Wyoming (1, 2 and 4 person)
* Note: "Family size" has a specific legal definition. Consult a local bankruptcy attorney for information on how these changes may impact your bankruptcy options.