Chapter 7 Median Income

In order to qualify for Chapter 7 bankruptcy protection, all filers must pass the Chapter 7 means test.

 

The first step in this test requires filers to compare their income to the median income in their state. Those with incomes below the median automatically "pass" and can file for Chapter 7; those with incomes equal to or greater than the median have to crunch a few more numbers.

 

Here’s a look at what median income is and how it may affect a bankruptcy case.

 

What Is Median Income?

 

Median income is the income in the middle of a given range. Median income is not the same as average income: it is the physical middle of the pack.

 

In any given group, half of the members have are above the median and half are below. The one in the middle is the exact median.

 

In bankruptcy, median income is used instead of average income because median income is not influenced as much by very outliers (that is, by people with very high and very low income).

 

For the purposes of bankruptcy court, government officials calculate median income levels for households of various sizes.

 

How Does Median Income Affect Bankruptcy?

 

The Chapter 7 means test was introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and is used to determine eligibility for Chapter 7 bankruptcy.

 

The means consists of these steps:

 

·         Median income comparison: First, filers compare their household income to the median income of a household of the same size in their state. Those with incomes below the median qualify to file for Chapter 7. Those with incomes at or above the median move on to the next step.

·         Disposable income calculation: Filers calculate their disposable income, which is defined as their total income minus certain "allowable" expenses (as defined by the Bankruptcy Code). If their total disposable income over five years is less than $6,000 (or less than about $100 per month), they qualify for Chapter 7. If it is more than $10,000 (or about $167 per month), they do not qualify for Chapter 7 (but can likely file under Chapter 13). If it is between $6,000 and $10,000, they move to the next step.

·         Unsecured debt comparison: Filers who have between $6,000 and $10,000 in disposable income over five years must compare their total disposable income to their unsecured debt. Those whose disposable income exceeds 25 percent of their unsecured debt are considered able to make Chapter 13 repayments (and thus ineligible for Chapter 7 bankruptcy). Those whose disposable income is less than 25 percent of their unsecured debts generally qualify for Chapter 7.

 

Disposable Income by State

 

These are the median incomes by state, last updated on March 15, 2011.

 

A bankruptcy lawyer can confirm whether these numbers are current. It's important to keep in mind, too, that there is a legal definition for "family size" that may or may not include all the people living in a given household.

 

State

Individual

2 People

3 People

4 People*

* For each person beyond 4: add $7,500.

Alabama

$38,642

$46,900

$52,460

$64,016

Alaska

$51,950

$75,460

$81,447

$85,964

Arizona

$42,603

$55,404

$59,659

$67,113

Arkansas

$32,834

$44,081

$49,599

$54,401

California

$48,009

$62,970

$68,670

$78,869

Colorado

$48,598

$64,679

$70,861

$83,976

Connecticut

$57,863

$71,961

$83,655

$103,314

Delaware

$48,415

$62,432

$68,518

$85,305

District of Columbia

$48,822

$80,172

$80,172

$80,172

Florida

$40,029

$50,130

$54,594

$65,135

Georgia

$39,384

$52,024

$56,682

$69,239

Hawaii

$50,664

$64,179

$75,670

$86,587

Idaho

$39,050

$48,648

$55,453

$61,480

Illinois

$46,355

$60,073

$69,910

$81,097

Indiana

$40,135

$51,104

$59,028

$69,226

Iowa

$40,456

$56,036

$63,510

$75,569

Kansas

$41,654

$57,174

$64,863

$69,272

Kentucky

$37,606

$45,081

$51,883

$63,768

Louisiana

$38,108

$46,704

$55,699

$67,239

Maine

$39,497

$51,600

$59,050

$68,466

Maryland

$55,774

$74,493

$87,152

$103,361

Massachusetts

$55,049

$68,243

$83,736

$102,110

Michigan

$42,562

$50,738

$60,161

$71,758

Minnesota

$45,022

$60,694

$72,886

$83,772

Mississippi

$32,658

$41,579

$47,058

$55,711

Missouri

$39,332

$51,120

$58,610

$69,832

Montana

$38,577

$52,412

$56,265

$67,921

Nebraska

$38,915

$54,124

$65,486

$71,097

Nevada

$43,041

$57,541

$60,783

$70,509

New Hampshire

$51,460

$63,534

$82,465

$89,990

New Jersey

$59,060

$70,680

$85,573

$101,106

New Mexico

$37,274

$51,855

$52,303

$53,709

New York

$46,295

$57,777

$68,396

$83,942

North Carolina

$37,781

$50,630

$55,468

$67,578

North Dakota

$41,443

$56,411

$69,328

$79,637

Ohio

$40,749

$51,319

$60,247

$72,625

Oklahoma

$36,884

$49,711

$54,135

$64,037

Oregon

$44,707

$55,553

$60,523

$72,767

Pennsylvania

$44,897

$53,706

$67,113

$79,916

Rhode Island

$46,136

$58,511

$72,184

$88,593

South Carolina

$37,055

$50,500

$52,738

$63,074

South Dakota

$35,582

$53,443

$58,794

$68,016

Tennessee

$38,144

$47,194

$53,227

$63,217

Texas

$38,294

$55,178

$56,445

$65,477

Utah

$50,635

$56,126

$61,944

$69,834

Vermont

$43,042

$57,948

$65,829

$78,392

Virginia

$50,296

$63,613

$73,260

$86,990

Washington

$49,930

$63,224

$72,524

$82,602

West Virginia

$39,750

$42,607

$51,350

$60,280

Wisconsin

$41,150

$56,080

$66,256

$77,438

Wyoming

$46,172

$60,829

$69,677

$76,361

 

Commonwealth/U.S. Territory

Individual

2 People

3 People

4 People*

* For each person beyond four: add $7,500.

Guam

$36,480

$43,617

$49,704

$60,149

Northern Mariana Islands

$24,496

$24,496

$28,500

$41,918

Puerto Rico

$21,273

$21,273

$23,011

$28,382

Virgin Islands

$28,943

$34,786

$37,090

$40,636

Bankruptcy News

Popular Atlantic Club Casino Files for Bankruptcy Protection posted on: November 8th 2013

By John Clark Another Atlantic City casino is f... read more

Poorest Catholic Diocese in America Set to File for Bankruptcyposted on: September 5th 2013

By John Clark The Roman Catholic Diocese of Gallup, New Mexico, the poorest diocese in the country, plans to file for Chapter 11 bankruptcy prote... read more

Wind Farm Sued by Minnesota for Fraud Files for Chapter 7 Bankruptcyposted on: June 30th 2013

By John Clark A wind farm that recently fought a lawsuit filed by the state of Minnesota alleging fraud is ... read more