The U.S. Department of Justice has published new median income figures for all bankruptcy cases filed on or after November 15, 2013.
The numbers has gone down from the prior figures, signaling a reduction in the average household income for California families.
Effective November 15, 2013, the applicable family median income for people filing for bankruptcy in California is:
1 Person: $47,798 (down by $617)
2 People: $62,009 (down by $1,021)
3 People: $66,618 (down by $783)
4 People: $75,111 (down by $545)
Though the numbers have gone down only by a little bit, the impact could be huge.
What Is Median Income?
According to the U.S. Census Bureau:
Median income is the amount which divides the income distribution into two equal groups, half having income above that amount, and half having income below that amount. Mean income (average) is the amount obtained by dividing the total aggregate income of a group by the number of units in that group. The means and medians for households and families are based on all households and families. Means and medians for people are based on people 15 years old and over with income.
In other words, half of the state’s population makes more than median income and the other half makes below median income.
How To Calculate Your Median Income for Bankruptcy Purposes
Take all of your income you’ve earned from all sources (even if it’s not taxable) for the past six months.
Now add in any money you receive from anyone else on a regular basis for your household expenses, to the extent that you’ve received that money in the past six months.
Now deduct benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments you’ve received as a victim of international or domestic terrorism.
Take that number, divide it by six to get your average monthly household income.
Now multiply that number by 12 to get your income, and match it up to the median income for your household size.
Why Median Income Matters When Filing For Bankruptcy
If you do the math and you’re below median income, you are able to file for Chapter 7 bankruptcy – the kind that allows you to wipe out most of your debts.
If, however, you’re above median income then you’ll need to go through a more complicated series of calculations to see if Chapter 7 bankruptcy or Chapter 13 – the kind of bankruptcy that involves repaying some of your debts over time – is a better fit for you.
Lower Median Income Means More Complications
If you’re below median income, you can skate through a quick Chapter 7 bankruptcy case. That assumes you don’t have assets or property that you’d lose in a Chapter 7, but all things being equal it’s a simple fix.
Above median income means we’ve got to run you through the means test – a series of calculations to determine whether you theoretically should have money left over at the end of an average month to repay some of your debts.
If the calculations yield no money left over, you can file for Chapter 7 bankruptcy if you want to do so. And if there’s money left on the proverbial table, you’re looking at a Chapter 13 repayment bankruptcy.
But there’s more to it than that.
The deductions you get from your income on the means test require a closer analysis of your situation.
Some expenses aren’t immediately obvious – such as medical costs (which include not only doctors but also those trips to Walgreen’s and Rite-Aid for cold medicine). Others point to a problem with your financial safety net, such as a lack of health insurance.
It all comes down to taking the time to not only calculate the numbers correctly, but to ask the right questions.
One thing’s for sure – a lower median income number is sure to lead to your lawyer taking a lot more time to analyze your situation so you can get the right type of solution to your bill problems.