12 Nov Evidence that the Median Income Tables Unfairly Push Working Poor into Chapter 13
Under the BAPCPA amendments to the bankruptcy law, a presumption of abuse of Chapter 7 arises if your “median household income” exceeds the median income tables published by the United States Trustee’s office. Although this presumption is rebuttable, as a practical matter the U.S. Trustee will object to almost any Chapter 7 case filed by an above-median debtor. At least this has been my experience in the Northern District of Georgia.
As a result of likley U.S. Trustee action, I have no choice but to charge significantly more to represent above-median debtors who want to file Chapter 7. Many of my colleagues in the Atlanta area consumer bankruptcy bar will not accept above-median debtors as Chapter 7 clients at all because of the strong probability of an unknown amount of extra work.
Above-median debtors, therefore, find themselves between that proverbial rockand a hard place. On one hand, many above-median debtors are very uncomfortable with the prospect of Chapter 13 because their own budget calculations show that Chapter 13 will not work. On the other hand, these “working poor” debtors can hardly find a lawyer to pursue Chapter 7 on their behalf and the few lawyers who might accept their case need several thousand dollars to justify the time involved.
A recent article in the Atlanta Journal Constitution hammers home the point that the median income tables do not accurately reflect even a minimum standard of living for the working poor. This article, entitled “Study: Life Not Cheap for Working Poor” cites a study prepared by Diana Pearce of the Women and Poverty Project and a faculty member at the University of Washington. This study was also published by the Georgia Budget and Policy Institute, which describes itself as an independent, nonprofit, nonpartisan organization engaged in research and education on the fiscal and economic health of the state of Georgia.
According to Professor Pearce, a single parent of three in Gwinnett County, Georgia – a suburb just outside Atlanta – would need to earn more than $62,000 annually to avoid going on government assistance and a single parent of three in Fulton County would need $53,683 and use public transportation to avoid welfare.
A look at the median income tables for Georgia effective as of October 1, 2008 (which are not broken down by county) shows that the median income in Georgia for a single mom with two dependents is $59,668. This means that the single mom in Gwinnett would be an “over-median” debtor if she attempted to file Chapter 7. The Fulton County single mom described in Professor’s Pearce’s study would be under median, but I suspect that if that single mom in Fulton County (a large county that encompasses much of the City of Atlanta) needed a car, her annual need would be similar to the $62,000 Gwinnett figure.
So, if we accept Professor Pearce’s research as accurate, families – especially those headed by single parents – can find themselves in need of welfare to survive, but not immediately eligible to file for Chapter 7 without paying thousands of dollars in attorney’s fees and facing a stressful and extended fight from the United States Trustee. Is this the kind of “abuse” that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was intended to prevent?
Jonathan Ginsberg, Esq.
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