Jobs, Wages, Bankruptcy and the Means Test
As we are all aware, the job market in Southwest Florida has been tough, to say the very least. Fortunately, I have met with a number of individuals recently whose times may be changing for the better. Some have just finished up their respective scholastic endeavors and some have obtained employment in a new industry after learning a new skill. However, while times may be improving on the job front, these individuals may still be straddled by the debt that was helping keep them afloat over the last few months. For these individuals to whom a Chapter 7 bankruptcy may help, I explain the necessity of understanding the timing of filing a bankruptcy.
In a Chapter 7 bankruptcy, the “Means” Test is computed to determine whether there is an abuse of the Chapter 7 bankruptcy process. Florida’s “median income” per household size is used as a benchmark in figuring whether there is such an abuse.
For example, the median income for a household of one in Florida is $39,383. If an individual’s income is greater than that amount, the “Means” Test is applied. The “Means” Test is a formula by which the secured debt payments, IRS standard of living for a household size (allocating certain amounts for food per person, clothing allowance, etc.), and other allowable expenditures are reduced by the Median Income for that household.
Generally, if there is money left over after calculating the “Means” Test, a bankruptcy filer is considered to have “Disposable Income” and would be barred from filing a Chapter 7 bankruptcy.
The timing of filing a Chapter 7 is important for individuals beginning new employment because the last 6 months prior to filing bankruptcy is used in computing the annualized amount of income an individual earns.
For example, if an individual earns $5,000 gross income per month, a total of $30,000 would have been earned over the last 6 months. That total is multiplied by 2, resulting in an annualized amount of $60,000 ($30,000 x 2). In a situation where an individual that has not worked in the last 6 months and has received an offer of employment where he/she would earn $60,000 annually, he/she would benefit from filing sooner rather than later, as little or no income from the new employment opportunity would be factored into for “Means” Test purposes.
If this individual files a bankruptcy after month two of employment, only those two months’ income ($10,000) would be counted for “Means” Test purposes, with four months of $0 income, resulting in the individual’s income being below the Median Income and, thus, no abuse of the Chapter 7 process.
However, if the same individual waits to file until they has been employed for more than 6 months, the last 6 months income would be used, leaving that individual over the Median Income and potentially unable to do a Chapter 7 bankruptcy.
As a point of reference, the table below lists the median income per household size (as adjusted on November 1, 2010):
HOUSEHOLD SIZE 1 2 3 4 5 6
MEDIAN INCOME $39,383 $49,321 $53,713 $64,084 $71,584 $79,084
As always, it is important to plan in advance the best course of action that meets your personal needs. A free initial consultation at the Dellutri Law Group is available to those who feel that bankruptcy may be able to help.
This Blog was written by Attorney John Webb, Esq. of The Dellutri Law Group, P.A. Mr. Webb practices Bankruptcy Law, Fair Credit Reporting Act Law, Fair Debt Collection Practices Act Law and in other areas of Consumer Law.
