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How Does Median Income Affect Bankruptcy?

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When you file for Chapter 7 or Chapter 13 bankruptcy, your household income is compared to the median income in your state for a household of the same size. For Chapter 7 bankruptcy, median income is used as a means test to determine if you are eligible for chapter 7 relief or not. If  you don’t qualify for Chapter 7, median income is used to determine how long your repayment plan in a Chapter 13 bankruptcy will be.

The means test looks at your income and expenses and denies Chapter 7 eligibility if the numbers don’t fit within certain guidelines. High income filers who fail the means test may use Chapters  11 or  13 to repay a portion of their debts, which requires debtors to make monthly payments over a three- to five-year period according to a strict budget monitored by the court.

Those with higher incomes may still qualify for Chapter 7 bankruptcy if they have a lot of expenses. Additionally, the means test only applies to debtors with primarily consumer debts, not business debts.  If you were self employed or have a lot of non-consumer debt, this issue requires careful scrutiny and analysis.

Just because you pass the means test, that does not mean Chapter 7 Bankruptcy is your best option.  And, if you do not pass the means test, there are a variety of other tools in the tool box that we can use to see if you are eligible for chapter 7, 11 or 13. Consult an experienced, board-certified bankruptcy lawyer to discuss your options. An expert bankruptcy lawyer can educate you about the best way to handle your situation and present alternatives that work in your financial favor.

Contact Cossitt Law at (406) 752-5616 to set up a consultation. The initial consultation includes up to a full hour of Jim Cossitt’s undivided attention, analysis and advice based on over 30 years of experience. At the end of the initial consultation, you will understand the pros and cons of your options and be able to make an informed decision with confidence. You will also understand the next steps involved to address your problem and obtain relief.

The census bureau publishes median income information here.*

* The figures in the Median Family Income chart change about every 18 months, so be sure you are using the most recent chart.

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