The Bankruptcy Means Test in Northern Michigan
The means test was implemented in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). It looks at the gross income from all sources that you’ve obtained over the last six months. It then compares that figure to the median average income for a household of the same size in your state. Starting November 1, 2009, these numbers in Michigan are as follows:
One earner – $43,611
Two people – $52,620
Three people – $61,737
Four people – $74,824
Four+ people – $74,824 + $6,900/person
If your average gross income for the past six months is under this number, you can file a chapter 7 without a presumption of abuse, or file a chapter 13 with a 36 month repayment plan.
If you are over this number, you must then subtract certain standardized IRS expenses from your income to determine whether you can file a chapter 7 without a presumption of abuse. This is complicated, but a competent bankruptcy attorney can often assist you in arranging your finances to better your chances. Otherwise, you must file a chapter 13 with a 60 month repayment plan or rebut the presumption of abuse by showing special circumstances.
The purpose of the means test was to prevent abuse of the bankruptcy code. Unfortunately, the means test has done more to increase the cost of bankruptcy and prevent honest people from obtaining needed help than it has to stop abuse. While bankruptcy filings reach new highs, those who have received a large bonus in the last six months or have just lost their job suddenly “make too much” to file a chapter 7 because the test unfairly looks backwards.
Even so, most residents of Northern Michigan fall below the threshold because median incomes tend to be higher downstate, which throws off the average. Of the USDA’s top ten median Michigan household incomes by county for 2007, only Leelanau is in the top ten. The only northern Michigan counties with median household incomes (regardless of size) above the single filer level of $43,611.00 are Leelanau ($55,292), Charlevoix ($48,829), Grand Traverse ($47,747), Emmet ($47,321), and Otsego ($44,591), and those numbers aren’t much higher than the individual filer threshold.
In other words, don’t let the recent changes to the bankruptcy code deter you from exploring whether bankruptcy is an option for debt relief. Most Northern Michigan residents will qualify for a chapter 7 bankruptcy or a 36 month chapter 13 repayment plan.