Bankruptcy Courts Update Dollar Amounts for the Means Test & Calculation of Disposable Income for Chapter 7 or Chapter 13 Bankruptcy
The means test is an examination of your monthly income and expenses, which determines how much money or disposable income (if any) you might have after meeting your monthly living expenses to apply toward your debt. The means test figures prominently in both Chapter 7 and Chapter 13 bankruptcy petitions. For Chapter 7, if your household income is above the median household income in your state, then you must take the means test to determine whether you are eligible to file for Chapter 7 or not (consumers with income below the state median automatically qualify). For Chapter 13, how you perform on the means test determines whether you can successfully discharge your debt adjustment plan in three years or five years and, more importantly, determines the amount of disposable income that must be paid monthly to your creditors.
Median household income data are initially created based on the federal census, which occurs every ten years. After that, the U.S. Bankruptcy Courts continue to adjust median income amounts about twice a year to keep up with changes in the cost of living. The most recent adjustment creates new income levels which apply to all bankruptcies filed on or after May 1, 2016.
For a single individual in California, the median household income has increased from $50,519 to $50,579. For a family of four, the median level has increased from $81,740 to $81,837. Median amounts for two and three-member households were also adjusted upwards. This change means that more people with lower incomes may qualify for Chapter 7 without having to take the means test.
Consumers filing for Chapter 7 or Chapter 13 must complete a set of forms detailing their income and expense information – forms 122A for Chapter 7 or forms 122C for Chapter 13. Your bankruptcy attorney can help you through this process, including determining your household income and completing the means test if necessary.
Also recently updated was IRS data which will impact the calculation of disposable income for Chapter 13. The IRS updated national standards for items such as food, clothing and housekeeping supplies, as well as out-of-pocket health care expenses. State standards were also updated in the areas of housing, utilities and transportation. Finally, the U.S. Bankruptcy Trustee updated the multipliers for calculating the expenses of administering a Chapter 13 plan, which may be included by a debtor when calculating monthly expenses.
Tables with updated information in all of these areas can be accessed from the U.S. Bankruptcy Trustee website, or directly from the Census Bureau or IRS.
For help navigating this difficult area of bankruptcy law, work with experienced southern California bankruptcy attorneys who stay on top of the latest developments in U.S. bankruptcy law. Call the Law Offices of Rounds & Sutter LLP at 805-650-7100 for a free consultation.