11 Feb How Do I Pass the Median Income Test in Bankruptcy?
To qualify for Chapter 7 bankruptcy you must pass the median income test. Chicago bankruptcy lawyer David Leibowitz blogged how Chapter 11 is an option for some people who have above-median income, in his article “Chapter 11 is for People Too.”
He said that you are presumed to abuse the system if you make more than half the people in the U.S. Just what does that mean and how can you tell if you earn too much to qualify for chapter 7?
The median income test is based on the average income earned in each state as calculated by the U.S. Census Bureau. David Leibowitz and I practice bankruptcy law in Illinois where the numbers, as of October 2008, are as follows:
Household Size Annual Income Household Size Annual Income
1 $ 45,604 5 $ 85,082
2 57,829 6 91,982
3 66,189 7 98,882
4 78,182 8 105,782
For each additional person in the household, add $6,900 to the previous amount.
To pass the median income test, add your gross income over the previous six months. Do not count the month you intend to file. Multiply that six month income by two and compare it to the annual income listed on the above table. Remember, these numbers vary by state and you must use the figures for your state. Do not count your entire annual income because this test only measures your income over that specific six month period.
If your income exceeds the median figures above, you are presumed to abuse the bankruptcy system as to chapter 7. That presumption is rebuttable, a fancy word that means you can overcome or wipe out the bad presumption.
You are entitled to complete the remainder of the means test wherein you are allowed to deduct certain expenses in an effort to reduce your income below the presumption of abuse. Many people have been able to deduct enough allowable expenses to sufficiently reduce their gross income and qualify for chapter 7 bankruptcy.
Andy Miofsky, Esq.
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