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How To File Bankruptcy: Applicable Median Family Income

This is part of our series on How To File Bankruptcy.

how to file bankruptcyOnce you figure out current monthly income for your means test, you need to match it up to see where you stand.

You’ve completed the first part of the onerous means test for your bankruptcy case.

You’ve totalled up your income over the past six months and are now at a crossroads.

Do you need to keep going with the means test, or are you done?

It all depends on whether your income falls above or below the applicable family median income.

Why Applicable Family Median Income Is Important

If your household current monthly income falls below the applicable family median income for a household of your size then you automatically pass the means test. You can file for Chapter 7 or, if you have reason to do so and otherwise qualify, Chapter 13 bankruptcy. If you choose to file for Chapter 13 bankruptcy, your repayment period will be 36 months long.

If, on the other hand, your household current monthly income falls above the applicable family median income for a household of your size then you need to keep going with the means test to see if you qualify for Chapter 7 bankruptcy.  If you choose to file for Chapter 13 bankruptcy, your repayment period will be 60 months long.

What Is Your Applicable Median Family Income?

The applicable median family income varies state-by-state, and is calculated by the Office of the United States Trustee.

You can check out the applicable median family income for California here.

You can check out the applicable median family income for New York here.

How To Determine Your Household Size

The term “household” is not defined by the U.S. Bankruptcy Code, so we are left with a variety of ways to calculate household size.  Three approaches to determining the size of a household have developed:

(i) the “heads on beds” approach, which relies on the Census Bureau definition and includes all persons occupying a housing unit, both related and not related;

(ii) the “IRS dependency” approach, limiting household size to individuals a debtor can claim as a dependent on its tax return, and

(iii) the “economic unit” approach, which includes individuals living with the debtor and acting as an economic unit, in that either they are financially dependent on the debtor, they financially support a debtor, or their income or expenses are inter-mingled or interdependent with those of a debtor.

In New York, the U.S. Bankruptcy Court for the Southern District of New York in the case of In re Fraleigh, 474 BR 96 (Bankr. Court, SDNY 2012) that the “economic unit” approach was properly used. However, other cases have stated that the decision on household size is done on a case-by-case basis.

In California, the U.S. Bankruptcy Court for the Eastern District of California in the case of In re Crow, Case No. 11-19074-B-13 (Bankr. Court, EDCA 2012) followed the same “economic unit” approach. Once again, however, other cases have stated that the decision on household size is calculated using one of the other methods.

Choose Wisely, Come Battle-Ready

There are three ways to calculate household size, courts are sharply divided even after years of wrangling with the issue, and the success of your bankruptcy case depends on getting it right.

Don’t take chances.

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By |May 26th, 2013|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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