Zuckerberg Bankruptcy Law Office

As a bankruptcy attorney in Indiana, I wear several "hats".  I'm a debt consolidation lawyer.  I offer payday loan help and student loan debt help, and small business bankruptcy help. But one thing I almost always have to do is prepare clients for the "test". 

The bankruptcy “means test” is a way for the court to determine if someone’s eligible to file bankruptcy. The point of the test is to compare your last six months of income with the median income earned by all Indiana residents over the same half-year period of time. In this case, less is better, because if your household income is less than the median amount, you probably qualify to choose either Chapter 7 bankruptcy or Chapter 13 bankruptcy; if your income exceeds the median amount, Chapter 13 may be your only option.

I'm constantly reassuring clients that the means "test" is not an exam that they have to take.  It's just a measurement that helps us decide what kind of bankruptcy options there are from which to choose.

A very important update in the Indiana bankruptcy information I offer is that the federal standards for bankruptcy were changed just three weeks ago, on November 1, which means the regional test standard numbers that apply in each locality changed as well.  With so many Hoosiers unemployed, the median income numbers have naturally gone down. Who dictates the changes? The U.S. Census Bureau and the U.S. Trustee publish a table that is used by the bankruptcy courts in each state. 

As part of the means test, certain deductions for expenses are allowed.  There are deductions for food, clothing, household supplies, personal items, housing and utilities, and vehicle operation expenses.  “Other necessary expenses” include taxes, mandatory payroll deductions, term life insurance, education for employment, and healthcare. As you may imagine, after all these deductions are applied, the income amount that is left is much smaller, making it more likely that the individual will have the option of filing Chapter 7 bankruptcy.

On the other hand, it’s important to remember that the whole idea behind the means testing is to ensure that only debtors who truly need relief should be eligible to file Chapter 7. Ironically, when the median income figures drop, that often means fewer people will be eligible to file a Chapter 7 bankruptcy, and they may need to file a Chapter 13 debt repayment plan instead. Because of this, one North Carolina attorney referred to the means test “a mean test”. 

The Census Bureau Median Family Income is keyed to family size.  As of November 1, for example, the Indiana median income number for households with one income earner is
$40, 828.  For families of two, the number is $52,554, for families of three, $59,650, and for families of four, $70,873.

Seems strange, doesn’t it?  While it doesn’t happen for the majority of my Indiana bankruptcy clients, it’s possible to have too little income to pay the bills, yet, at least according to the bankruptcy means test,  have “too much” income to file bankruptcy!