Effective Feb 1, New Median Family Income Values for Means Testing

[anonymuse]

http://www.usdoj.gov/ust/eo/bapcpa/20070201/meanstesting.htm

[SinkingFast]

After going down in October, our Median went back up nearly $500/yr. Still below where we were in Feb 2006.

[manglicmot]

Thanks so much sinking. Having all of this info not only helps with planning, but it is a stress reliever too.

I just added up my last six months gross income before taxes. It comes to 18970.08. So if I annualize that, it is 37940.16. In California, it says the median for one earner is 44499. That puts me 6558.84 under the median.

I read in one of the threads here that someone's attorney told them that they consider the local area you live in when considering median income. If that is really true, I live in San Diego so I wonder if that would affect my B22.

Do you think that being as far under the median as I am I would have any problem qualifying for Chapter 7? It seems like a large enough number that a trustee would actually give me money for a sandwich and a cup of coffee rather than try to throw me into chap 13.....

[SamanthaJones]

If you are under the median you are eligible to file CH7.

Simple enough. As far as San Diego- if you were over the median, there may be local expense variations to use to complete the means test (which you do not need since you are UNDER the median). This is a common oversight I see in here. You pass if you are under the median. You also pass (for CH7) if your expenses exceed your ability to repay your debts. I'm sure there must be higher variances for San Diego County for certain living costs, over a rural area. Also, if you fail the means test, you can always take on a car payment, for instance, to increase your expenses to decrease your disposable income.
(If you are over $400 and have $400 that you can allegedly pay your creditors- buy a car with a $400 payment, which would reduce your disposable income to ZERO as long as the EQUITY in the car does not go over the allowed exemption for your state). So, it's possible to to be under median and pass, or to be over median and fail, then to 'readjust' your exenses then PASS again~.

[no_it_all]

Also, if you fail the means test, you can always take on a car payment, for instance, to increase your expenses to decrease your disposable income.

Not true. Any car payment is DEDUCTED from the IRS Local Standards for Transportation costs. The amount of that deduction will be added in later on the Means Test...The net effect of this would be a zero change in disposable income. For example: You run out and buy a car with a $450 payment for FIVE years...(not the <smartest> thing to do on the verge of BK). That payment is deducted from the IRS Local Standard and you get to claim an expense of $20 on that line of the Means Test ($470-$450=20). Next you get to add your car payment on another line of the Means Test. So, you write down your payment of $450. Your allowable transportation costs are now back to where they were before you went out and bought a car! How?? Because you add your payment (450) to the Local Standards (20) and you are right back to the original $470 that you would have received WITHOUT having a car payment for the next five years!

The ONLY smart thing to do in this situation is NOT to get a car payment but to get another car for a few hundred dollars, insure it and tag it and NOW you get to claim a second vehicle and grab about another $400 per month in deductions!!

Again, people who suggest going out and getting a car payment on the verge of BK so someone can <reduce their disposable income> have no idea how the Means Test Calculations are compiled.

Disposable income CAN be reduced by having a car payment...BUT it would have to be greater than the local IRS standard deduction to have any impact on disposable income. A payment in the neighborhood of say $800 per month would reduce monthly income only by about $330 or so...Not even as much as buying a beater second car would!!!

Suggesting that someone on the verge of BK finance 20 or 30 thousand dollars for a depreciating asset that will have little or no effect on their disposable income is simply bad advice. In fact, on edit, I believe this is a true loophole in the Mean Test that isn't nearly as exploited as it should be. There should be a sticky telling everyone with only one car to buy a beater for a few hundred dollars!! When I did my Means Test Calculations I immediately noticed this and you can bet when I filed, I had two vehicles to claim.

[anonymuse]

Do you think that being as far under the median as I am I would have any problem qualifying for Chapter 7? It seems like a large enough number that a trustee would actually give me money for a sandwich and a cup of coffee rather than try to throw me into chap 13.....

Just remember, to oversimplify, there are 2 pieces to the bankruptcy puzzle: 1) income and 2) assets.

If you're under the median income, that's a huge bonus. Add on to that having less than $100 disposable income, that looks very good also since trustees tend to want to put anyone with $100 or more disposable income into a Ch 13 repayment plan.

However, you need to make sure that you don't have too much equity in your auto and home.