What is “median family income” and why do I care? One of a series

by Jay Fleischman, Esq.

December 23, 2009

Your bankruptcy lawyer will want to know how much you make.  Not only that, your lawyer will want to know how much your spouse makes.  Why does this matter?

Because Congress says it matters.  In 2005, Congress enacted BAPCPA – which was supposedly the “Bankruptcy Abuse Prevention Consumer Protection Act.”  This act neither prevents bankruptcy abuse nor protects consumers.  However, it does define “abuse”.

Congress thinks that people who are above-average earners are abusing the bankruptcy system when they file chapter 7.  Congress wanted above-average earners to file cases under chapter 13 and devote 5 years of their disposable income to paying some of all of their debts.

An above-average earner is “presumed” to be abusing the system by filing a chapter 7.

Who is an above-average earner?  Congress looks at the “median family income” for a family the size of the debtor’s family.  And that “median family income” is determined by figures issued approximately semi-annually by the Census Bureau.  The “median family income” literally means the income level for which half the families make more and half the families make less.  The “median family income” is determined on a state by state basis.  For example, the median family income in Illinois is higher than it is in Wisconsin.  Both Illinois and Wisconsin median family income is less than Indiana.  All are more than Mississippi or West Virginia, states with relatively low median family income.

“Median family income” is also adjusted for the size of a family.  So a family of 4 is deemed to have a higher median family income than a family of 2.  This is odd since a childless couple working may have just as much income as a family of 4 with two children.  Yet the median family income for a family of 4 is higher than that for a family of 2.  Each additional person in the family results in an increase in the “median family income” for means testing purposes.

We didn’t write the law.  But we do have to work with it.  If you make more than the “median family income” and are presumed to be abusing the system by filing chapter 7, good bankruptcy lawyers will try to help you “overcome the presumption of abuse” if you want to file a chapter 7 case.  Or they will help you develop the best chapter 13 plan for you. For more information about means testing, click here.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

Last modified: January 7, 2010