Chapter 7 in Georgia Becomes More Difficult on November 1, 2010
Thursday, October 14th, 2010
The United States Trustee has released revised median income figures for Georgia households. These new figures will apply to Chapter 7 and Chapter 13 cases filed after November 1. The revised figures continue the trend of lower household income amounts meaning that it will be more difficult to avoid a "presumption of abuse" in Chapter 7 filings. Presumably the new numbers reflect lower household income figures associated with the current recession.
The Bankruptcy Code looks to median household income figures compiled by the U.S. Census to determine whether or not you have the "means" or capacity to pay back some or all of your bills. Means testing was introduced into the consumer bankruptcy process in 2005.
The chart below summarizes the impact of the revised numbers:
| Family size | Median income thru Oct. 31 |
Median income: after November 1 |
Change |
| 1 | $40,546 | $38,748 | -$1,798 |
| 2 | $55,061 | $51,184 | -$3,877 |
| 3 | $60,887 | $55,767 | -$5,120 |
| 4 | $68,258 | $68,122 | -$136 |
The impact of this change is most pronounced on two person and three person families. Lower median income numbers mean that more filers will end up in Chapter 13 since anyone "above median" will be presumed to have enough money to pay back creditors in a Chapter 13. Chapter 13 cases filed using the new numbers will also result in higher monthly trustee payments because the amount of funds "available" to pay back creditors will be higher.
Above median debtors are not without hope – those filers can still qualify for Chapter 7 under part 2 of the means test, but that process puts more scrutiny on a filer's budget and adds to the complexity of the filing. Read more about the forthcoming change to the median income tables on the Bankruptcy Law Network, where my colleague Jill Michaux has posted an article entitled "The Means Test Gets Meaner."
Bottom line: if you are considering Chapter 7, look closely at that option prior to November 1, 2010 or risk an unpleasant post-Halloween surprise.
As you probably know, your eligibility for bankruptcy protection is determined in part by your household income. The Bankruptcy Code requires us to calculate your median income by looking at gross income earned by you, your spouse and any other working member of your household during the 6 months preceding the current month. We add up all the income and divide by 6 to arrive at a number. We then compare than number to a median income table provided to us by the Census Bureau and the United States Trustee's office. This calculation is called the "median income test."
Let's consider how this change affects you if you have a family of 4. If you file by October 31, 2009, you can have household income of $71,554 and still qualify for Chapter 7 without having to qualify under the means test. As of November 1, 2009, if you earn $71,554, the presumption of abuse arises and you must try to qualify by rebutting the presumption using the means test.