On December 13, 2011, President Obama signed into law H.R. 2192, the “National Guard and Reservist Debt Relief Extension Act of 2011,” which renews an exemption in  11 USC § 707(b)(2)(D) for reservists and National Guard members from Chapter 7 bankruptcy means-testing requirements. The bill amends a 2008 law to make reservists and Guard members that have served on active duty or homeland defenses for at least 90 days since Sept. 11, 2001 eligible for the exemption through 2015.

The income figures used to determine whether or not a person qualifies to file Chapter 7 bankruptcy change approximately twice a year and new numbers will be effective November 1, 2011.

The United States Trustee Program has posted new “Census Bureau Median Family Income By Family Size” figures that apply to bankruptcy cases filed on or after November 1, 2011.

A review of the new numbers shows that it will be a little easier to qualify for Chapter 7 bankruptcy for all Oklahoma households consisting of only one person.

However, it will be slightly more difficult to qualify for Chapter 7 bankruptcy for individuals who live in a household consisting of more than one person.

The new median income figures for Oklahoma households are:

• $37,466 (1 person household)
• $48,313 (2 person household)
• $53,332 (3 person household)
• $60,395 (4 person household)

*Add $7,500 for each individual in the household over 4.

If gross household income falls below the applicable numbers, an individual or married couple passes the Means Test and automatically qualifies to file a Chapter 7 bankruptcy.

A person whose household income exceeds these figures may still qualify for Chapter 7 bankruptcy if he/she has enough allowable expense deductions to offset his/her above median income or if the projected amount of disposable income would pay less than 25% of the total unsecured debt.

A person who fails the Means Test and does not qualify to file Chapter 7 bankruptcy may choose to file a Chapter 13 bankruptcy instead.

Source: The United States Department of Justice

The income figures used in the Means Test formula are changing effective March 15, 2011 and the changes bear some good news for Oklahoma households.

The new income figures will make it a little easier for Oklahomans to qualify for Chapter 7 bankruptcy as households of all sizes will be allowed to file Chapter 7 bankruptcy on or after March 15, 2011 with a slightly higher gross income than is currently allowed.

The new median income figures for Oklahoma households are:

• $36,884 (1 person household)
• $49,711 (2 person household)
• $54,135 (3 person household)
• $64,037 (4 person household)

*Add $7,500 for each individual in the household over 4.

If gross household income falls below the pertinent numbers, an individual or married couple passes the Means Test and automatically qualifies to file a Chapter 7 bankruptcy.

A person whose household income exceeds these figures may still qualify for Chapter 7 bankruptcy if he/she has enough allowable expense deductions to offset his/her above median income or if the projected amount of disposable income would pay less than 25% of the total unsecured debt.

A person who fails the Means Test and does not qualify to file Chapter 7 bankruptcy may choose to file a Chapter 13 bankruptcy instead.

Source: Census Bureau Median Family Income By Family Size

The Means Test, which I call the Mean Test, just got a whole lot meaner for small Oklahoma households.

The Means Test is a formula that determines whether or not a person financially qualifies to file Chapter 7 bankruptcy. The Means Test was given to us by Congress in 2005 as part of the new bankruptcy laws and was designed to make it harder for people to file Chapter 7 bankruptcy.

The income figures used in the Means Test formula are changing November 1. And the changes are not good news for Oklahoma households of one to three people.

The new income figures will make it more difficult, if not downright impossible, for some people to qualify for Chapter 7 bankruptcy on November 1 when they would have qualified just the day before on October 31.

For example, a person living alone currently qualifies for Chapter 7 if he/she earns less than $38,929 per year. As of November 1, 2010, that same person will qualify for Chapter 7 only if he/she earns less than $36,289 per year. That difference of $2,640 will work to disqualify many from being able to file Chapter 7 bankruptcy. And the same can be said for Oklahoma households of two and three.

The new median income figures for Oklahoma households are:

• $36,289 (1 person household)
• $48,909 (2 person household)
• $53,261 (3 person household)
• $63,004 (4 person household)

*Add $7,500 for each individual in the household over 4.

If gross household income falls below the pertinent numbers, an individual or married couple passes the Means Test and automatically qualifies to file a Chapter 7 bankruptcy.

A person whose household income exceeds these figures may still qualify for Chapter 7 bankruptcy if he/she has enough allowable expense deductions to offset his/her above median income or if the projected amount of disposable income would pay less than 25% of the total unsecured debt.

A person who fails the Means Test and does not qualify to file Chapter 7 bankruptcy may choose to file a Chapter 13 bankruptcy instead.

Every few months, the income figures used to determine whether or not a person qualifies to file Chapter 7 bankruptcy are adjusted. The current means test income figures that have been in effect since November 1, 2009 will be changing March 15, 2010.

My review of the new numbers reveals that it will be a little harder for Oklahomans to qualify for Chapter 7 bankruptcy on March 15 compared to today. This is because the new median income figures are lower than the prior income figures for Oklahoma households of all sizes.

The new median income figures for Oklahoma households are:

• $38,929 (1 person household)
• $50,710 (2 person household)
• $54,328 (3 person household)
• $61,816 (4 person household)

*Add $6,900 for each individual in the household over 4 for cases filed from March 15 through March 31, 2010.

*Add $7,500 for each individual in the household over 5 in cases filed on April 1, 2010 or thereafter.

If a person’s household income falls below these income levels, he/she passes the Means Test and automatically qualifies to file a Chapter 7 bankruptcy.

Most types of income are counted toward these figures, but a few types of income are excluded such as Social Security income.

A person whose household income exceeds these figures may still qualify for Chapter 7 bankruptcy if he/she has enough allowable expense deductions to offset his/her above median income.

A person who fails the Means Test and does not qualify to file Chapter 7 bankruptcy may choose to file a Chapter 13 bankruptcy instead.

The income figures used to determine whether or not a person qualifies to file Chapter 7 bankruptcy changed yesterday.

The United States Trustee Program has posted new “Census Bureau Median Family Income By Family Size” figures that apply to bankruptcy cases filed on or after November 1, 2009.

A review of the new numbers shows that the median income for Oklahoma households of 1 and 3 persons has increased which will make it a little easier for Oklahoma households of those sizes to qualify for Chapter 7 bankruptcy. Unfortunately, Oklahoma households of 2 and 4 or more people will find it a little harder to qualify for Chapter 7 bankruptcy as the median income for those size households has decreased.

The new median income figures for Oklahoma households are:

• $39,068 (1 person household)
• $50,891 (2 person household)
• $54,522 (3 person household)
• $62,037 (4 person household)

*Add $6,900 for each individual in the household over 4.

If a person’s household income falls below these income levels, he/she passes the Means Test and automatically qualifies to file a Chapter 7 bankruptcy.

Most types of income are counted toward these figures, but a few types of income are excluded such as Social Security income.

A person whose household income exceeds these figures may still qualify for Chapter 7 bankruptcy if he/she has enough allowable expense deductions to offset his/her above median income.

A person who fails the Means Test and does not qualify to file Chapter 7 bankruptcy may choose to file a Chapter 13 bankruptcy instead. In this situation, a 60-month Chapter 13 plan must be proposed unless a 100% payback to unsecured creditors can be accomplished in fewer than 60 months.

If a person passes the Means Test but voluntarily chooses to file a Chapter 13 bankruptcy instead of a Chapter 7, he/she may propose only a 36-month Chapter 13 plan.

That was the year Congress passed some new bankruptcy laws at the behest of credit card companies. The changes were intended to make it more expensive and more difficult for people to file Chapter 7 bankruptcy.

One of the changes was the implementation of a “Means Test” the purpose of which was to force people out of Chapter 7 and into Chapter 13 bankruptcy. The credit card companies argued that there was widespread abuse and fraud being committed in the bankruptcy system and that many people were filing Chapter 7 bankruptcy and wiping out debt when those same people actually had the ability to repay a substantial amount of their debt in Chapter 13 bankruptcy.

The Means Test begins with an inquiry that asks whether a debtor is above or below the state median income for a household of the same size in the debtor’s state. The state median income figures are periodically updated by the U.S. Census and the Executive Office for U.S. Trustees (EOUST) publishes the figures that are used in bankruptcy cases.

With the recession, incomes are falling. These falling incomes are represented in the updated state median income figures which have generally also declined.

For example, right now in Oklahoma, a filer from a 2-person household presumptively fails the Means Test if he or she has median income above $51,322. On November 1, that will change to $50,891.

This means that a person from a 2-person household with an annual income of $51,000 currently passes the Means Test and qualifies for Chapter 7 bankruptcy. However, after November 1, that same person will presumptively fail the Means Test and could be forced into Chapter 13 bankruptcy.

However, the changes are not consistent across different sizes of households. For example, in Oklahoma the median income figures drop for 2 and 4-person and greater households (making it harder to file chapter 7 bankruptcy) but rise for 1 and 3-person households.

Some might say that I’m making a mountain out of a molehill.  How many people are really going to be affected by a change of a few hundred dollars in the means test’s median income figures? Well, maybe not a lot, but with bankruptcy filings headed toward at least 1.5 million bankruptcy in 2010, also not just a few.

Regardless of the number of people who are affected by the change, what concerns me more is the symbolism of making personal bankruptcy less available during a time of economic crisis. These sorts of changes feed the perception that the government will help out large financial institutions but not the common man and woman.

This post is not meant to alarm anyone. If you’re thinking about filing bankruptcy, there’s no reason to panic. If you’re well below the state median income for a household of your size, the new updated figures will not affect you. Even people who are above the state median income often still qualify for chapter 7 because they have certain allowable expense deductions. But, if your income is near your state’s median, you might want to talk with a bankruptcy lawyer before the new income figures take effect on November 1.

The easiest way to pass the Means Test and qualify to file Chapter 7 bankruptcy is to earn less than the median income for a similarly sized Oklahoma household.

Those median income figures are set to be updated in the very near future and should be posted to the U.S. Trustee Program website by October 9, 2009. The figures were last updated March 15, 2009. Once available, I will provide the new figures here on the Oklahoma Bankruptcy Lawyer Blog.

The Department of Justice will apply these new figures to bankruptcy cases filed on or after November 1, 2009.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires most people to pass the “Means Test” before they will be allowed to file Chapter 7 bankruptcy.

Notice that I said “most” people, not “all” people. There always seems to be exceptions to just about every law. And the complex set of laws known as the U.S. Bankruptcy Code has it’s fair share of exceptions. And most of these exceptions are downright tricky.

Earlier this week, I was contacted by a disabled veteran and his wife who had already talked with at least one other bankruptcy lawyer. This couple was in a bad financial situation and they really wanted to file bankruptcy, but they wanted a second opinion on several things they had been told by the other lawyer. And wouldn’t you just know it – my legal opinion differed dramatically from the other bankruptcy lawyer on some key issues.

One of those key issues was whether or not all disabled veterans are exempt from having to take and pass the Means Test.

Their understanding was that all disabled veterans were excused or exempt from the Means Test. I hated to be the bearer of bad news, but my legal opinion was quite different than what they had been told.

I told them that while there indeed is an exemption from the Means Test for disabled veterans, the definition of “disabled veteran” is narrowly defined for purposes of the Means Test. And unfortunately, my opinion was that even though the husband was in fact a disabled veteran who was drawing VA disability, he did not meet the narrowly defined version of “disabled veteran” under the Means Test. Therefore, they were required to take and pass the Means Test in order to qualify for Chapter 7 bankruptcy.

What exactly is the definition of “disabled veteran” as far as the Means Test is concerned? Well, I’m glad you asked.

For purposes of the Means Test exemption, just being a disabled veteran in and of itself is not enough. Not only must the person be a disabled veteran (as defined in 38 USC 3741(1)), but the disabled veteran’s indebtedness must have occurred primarily during a period in which he/she was on active duty (as defined in 10 USC 101(d)(1)) or while he/she was performing a homeland defense activity (as defined in 32 USC 901(1)).

And based on that narrowly drawn definition, the husband did not qualify for the disabled veteran exemption because while he was indeed a disabled veteran, his debt had not been incurred while on active duty or while performing homeland defense.

This past Sunday, something happened that will allow more Oklahomans to be able to file Chapter 7 bankruptcy.

It used to be that almost anyone with serious debt problems could seek to eliminate their debts by filing Chapter 7 bankruptcy. That all changed in 2005 when the new bankruptcy laws were passed by Congress. The new bankruptcy laws were intended to make it more difficult to file Chapter 7 bankruptcy where debts are discharged (forgiven or wiped out) and to force more people into Chapter 13 bankruptcy where a substantial part of debts must be repaid.

The new bankruptcy laws contain a “Means Test” that determines whether a person gets to file a Chapter 7 bankruptcy or has to file a Chapter 13 bankruptcy.

Well this past Sunday, March 15, 2009, the government updated the criteria used in the Means Test calculations. These updated figures mean that more Oklahomans will qualify to file Chapter 7 bankruptcy.

The Means Test

The Means Test is a complex formula designed to decide whether a person has the financial means to pay back a substantial portion of his or her debts.

Basically, if a person’s income is below the Oklahoma state median income for a family of the same size, he automatically passes the Means Test and may file a Chapter 7 bankruptcy. However, if a person’s income is above the Oklahoma state median income for a family of the same size, then he initially fails the Means Test. That person may still be able to qualify for Chapter 7 bankruptcy if he has a sufficient amount of deductions that are allowed by the Internal Revenue Service (IRS). If not, then that person will have to file a Chapter 13 bankruptcy instead of Chapter 7.

New Criteria Means More Oklahomans Qualify for Chapter 7 Bankruptcy

The new criteria, which is based on U.S. Census figures and I.R.S. tables, increases the median income for Oklahoma residents. It also increases the various Means Test deductions which will make it easier for Oklahomans to be eligible for Chapter 7 bankruptcy relief.

This new criteria will have the effect of enabling more Oklahoma consumers to qualify for Chapter 7 bankruptcy.

If you are struggling with debt problems and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation. I would count it a privilege to be able to visit with you in a relaxed and confidential environment where I’ll answer all of your questions in plain English and give you the straight scoop on the pros and cons of bankruptcy as related to your specific situation.

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