Updated Median Income Standards

The median income standards for determining if you qualify for Chapter 7 bankruptcy will increase on November 1st, 2018. The standard looks at two things, household size and gross income. It is increased periodically to account for inflation and increased cost of living.

The new standards are as follows:

• Household of 1 person: $53,803.00

• Household of 2 persons: $65,060.00

• Household of 3 persons: $80,551.00

• Household of 4 persons: $97,692.00

Each additional household member will allow an additional increase in household income of $8,400.00.

A few important things to note. First, household size is determined primarily by whether or not the adults living together are married, and whether or not the children in the household are claimed on the federal income taxes as dependents. So, if a married couple has two kids who are both claimed on their taxes, the household size is four. If a single, divorced person lives with their child part-time, but does not claim the child on their taxes, it is a household of one. There are more complex situations that can be discussed with your bankruptcy attorney, but this is just a broad, brief overview.

A second thing to note is that the household income will look at all types of income for BOTH spouses, whether they are filing for bankruptcy or not. Income includes, but is not limited to, bonuses, unemployment, self-employment, side jobs, Social Security, and pensions. If one spouse has a large income, but no debts, the bankruptcy court will still consider their income in the household total. Income has a broad definition in bankruptcy, if you have any doubt, ask your attorney.

A third important thing to note is these standards refer to gross income, which means your income before taxes. This is very important to keep in mind, as net (after-tax) income can be dramatically different. Many people think of their “income” as the amount of money they take home, but in bankruptcy on the means test, it will refer to your income before taxes.

In any case, your attorney will need to closely review your income to make sure you fall below the median income standard, so always be ready to gather up six months of paystubs. And remember, even if you go above the standard, you may still qualify for a Chapter 13 bankruptcy.

Contact us if you have any questions about whether or not you will be below the median income standard.

Showing Your Income For Bankruptcy

Proof of income is an important part of the bankruptcy filing process. You must show the bankruptcy court exactly how much money you have made in the six months before filing. Your income is "means tested", which determines whether you have the ability to pay your creditors, based on your household size and income.

The means test amounts are set by the court, and are periodically updated. This is explained in greater detail elsewhere in this blog. The important issue for now is how do you show and calculate your income? If you have a regular employer who issues pay stubs, this should be quite simple. Gather up your last six months of pay stubs for your bankruptcy attorney (you may need to speak to your payroll department if you do not keep them). Your bankruptcy attorney should be able to quickly determine what you have earned.

However, calculating your means test income is a bit trickier if you are self-employed or engaged in non-traditional work. The most common recent example is ride sharing, such as Uber or Lyft. If you work as a ride sharing driver, you will probably not receive a traditional pay stub. Both of these companies provide summaries online, which you will need to forward to your bankruptcy attorney. However, these summaries do not include proof of taxes paid, which is done directly by the driver. They also do not disclose your expenses, such as gas and auto maintenance. You will need to separately provide your bankruptcy attorney with proof of taxes paid, or other expenses.

Other types of self-employment raise similar, sometimes even trickier, issues. If you are a self-employed contractor for instance, you may need to provide your attorney with 12 months of income and expense statements. Not only must you show your gross deposits, you must also show corresponding expenses for things such as materials. If you are involved in sales, your income may be irregular and dependent on commissions. You will need to provide this information. You will want to speak to an experienced bankruptcy attorney if you are self-employed, as this can be a complicated area of the law which you will need guided through.

If you are not employed, there are other types of "income" you must be prepared to show the bankruptcy court. Unemployment compensation is income for bankruptcy purposes, and therefore must be disclosed. The state unemployment website allows you to access a summary of all benefits paid. If you receive Social Security or pension income, you will want to find your yearly benefits letter as proof of income. If you receive a regular contribution towards your expenses from a spouse or loved one, you must be prepared to calculate exactly how much for your attorney. Regardless of what type of income you receive, it must be disclosed to the bankruptcy court.

One final point, you must also disclose the income of your spouse, if you are not separated. This is even true if they are not filing. So, everything from above will apply the same for your spouse. The means test is for household income, which will include spousal income (once again, assuming you are not legally separated).

Your bankruptcy attorney will discuss these issue in greater detail, but if you are considering whether or not to file, it would not hurt to gather up this information. It will be the first step towards determining your eligibility to file. Contact us if you would like to schedule a free, one-hour consultation to review your income and debts.

Updated Means Test Median Income

The bankruptcy median income means test has been updated on November 1st, 2017. This number, based on family household size, is used to determine whether or not you must repay unsecured creditors through Chapter 13 bankruptcy.

The new chart for annualized, gross income is as follows:

• Household of 1- $51,960
• Household of 2- $62,359
• Household of 3- $77,306
• Household of 4- $91,692
• Household of 5- $100,092
• Household of 6- $108,492
• Household of 7- $116,892
• Household of 8- $125,292

How do you make sense of this to determine where you fall? Well, for one thing, the means test is a 6 month look-back at ALL income (excluding Social Security). So, if you have no children or spouse, you would look at the allowable income for a household of 1. The number listed above is for GROSS (before tax) income, and it is annualized. If you are a household of 1, divide the allowable income by 2 (in this case $25,980). If you grossed more income in the 6 months before filing, you are above the means test baseline, and must then determine your "disposable monthly income."

If you are married, you must include all household income, even if your spouse is not filing. Income includes pensions, unemployment earnings, bonuses, and even lottery winnings. Legal dependents, usually children, will add to your household size (the rule of thumb is, if you have claimed a child as a dependent on your taxes, you can claim them in bankruptcy).

So, add up all gross income for the six months before filing, determine your household size, divide the threshold amount by 2, and you should have a pretty good idea if you will be required to repay your unsecured creditors.

There are some allowable deductions, such as taxes, alimony, insurance, and household expenses that could lower your income. The means test is fairly complicated. Contact us to set up a free consultation. I will be happy to review your income and expenses and determine whether or not you must repay your creditors. I am an experienced bankruptcy attorney who can walk your through the intricacies of bankruptcy law. I can help you to plan for the means test, and review every loophole (for instance, the means test does not apply if your debts are primarily business).

Updated Median Income Amounts For Western Pennsylvania

The United States Trustee has published new Census Median Income tables, effective Saturday, April 1st, 2017. These tables are used to determine whether or not a bankruptcy filer, based on household size and gross income, must file a Chapter 13 repayment. If the household income is above these thresholds, you will need to complete the second portion of the means test.

1. Household of one: $51,138
2. Household of two: $61,271
3. Household of three: $75,018
4. Household of four: $90,821
5. Household of five: $99,221
6. Household of six: $107,621
7. Household of seven: $116,021
8. Household of eight: $124,421

A couple of points of clarification. First, these amounts are for annualized gross income. But, the means test is a 6 month look-back. This can be a bit confusing. If you are the lone household earner, you will be above the threshold if you earn $25,569.00, or one-half of the annualized threshold amount listed above, in the 6 months before filing. The table is calibrated to yearly earnings, but the means test only looks at the 6 months before filing (this consistently causes confusion).

Second, these amounts are for gross earnings, that is, earnings before taxes. The amount you paid in taxes for the 6 months before filing only applies for the second part of the means test, which may reduce the amount you must repay. However, the initial determination is based on gross income.

Third, household size is generally determined by how many dependents you claim on your taxes. There are exceptions to this rule, but it is the basis in most cases. Adult children normally do not count.

Finally, it should be noted that ALL sources of income, outside of Social Security benefits, are used to calculate this income. This includes bonuses, unemployment, lottery winnings, side jobs, and business income. Make sure you report all types of income to your attorney.

If you have any questions about how the means test works, or would like to schedule a free consultation to calculate your earnings, contact us. Make sure to have 6 months of pay stubs and proof of income. I will be happy to walk you through the process.

The Means Test and Non-Consumer Debts

Individuals looking to file for relief under the Bankruptcy code will normally be subject to the "means test". The means test is a six month look-back of all income earned by the household in the period right before filing bankruptcy.

This definition of income is broad. It will not only include salaried income, overtime, commissions, and bonuses, but it will include one time payments such as lottery winnings and inheritances. It will include unemployment compensation, and it will even include money that is not taxable, such child support. This broadly defined income will be compared against household size, and if your income is above the threshold, you may be required to repay your creditors in a Chapter 13 bankruptcy. For a household of one, the threshold is about $25,000 in gross income over the previous six months. The threshold increases with household size.

The means test is very important, as the result can lead to thousands of dollars of repayments if it is failed. In the vast majority of bankruptcy filings it applies and must be completed. The vast majority of cases... but not all.

The means test does not apply when the majority of your debts are business in nature, not consumer. 11 United States Code 707(b) says the means test only applies when, "debts are primarily consumer debts." So, if you your debts are primarily from a failed business, the look-period on your income described above does not apply. This is obviously very important if your income is potentially above the threshold. You may be able to avoid filing a Chapter 13 bankruptcy.

So, when are debts primarily business? Is it the number of debts, or the dollar amount? Most courts hold that the dollar amounts of your debts is the determinant amount, and this makes sense. A handful of credit cards in the thousands with a single massive business debt in the hundreds of thousands could hardly be described as "primarily consumer" in nature. Still, it is advisable to consult an experienced bankruptcy attorney with debts of a mixed business and consumer nature, or when the amounts could be in dispute. Generally, if the debt was used to pay primarily personal, family, or household debt, it is consumer, and you will be subject to the means test.

What kind of proof will you need that your debts are primarily non-consumer? The statements themselves will often make it clear, especially if they show the purchase of business assets. The Court may want to see original paperwork related to loans from banks, so you may want to gather that information. Proof of other business statements, such as LLCs and operating agreements can also show that the debts were incurred while in business, for the benefit of the business. Any proof you can provide that show non-consumer intent will be helpful in your bankruptcy case.

Contact us if you have significant business debt. The Bankruptcy Code can be used to your advantage to eliminate these debts and give you a fresh start. We will be happy to discuss your situation in a free consultation. Don't let old business debts drag down your future.