Under the BAPCPA (the 2005 Amendments to the Bankruptcy Code), to file Chapter 7 bankruptcy, a debtor must pass a test. The test is in some respects very simple, and in others very complex. The very first step (which can be relatively easy) is to compare a debtor’s income to the median income for the State in which they live. These “median income numbers” are published by the Federal Government, and are adjusted annually. Come November 1, 2009, for the first time since the law was implemented, the median income for most states is going down! This means that after November 1, 2009, you must earn less than you could have in October to qualify to file bankruptcy. For the State of California, this now two-year long economic slide has resulted in the median income at all but one level of household size (1, 2, 4, etc…) having gone down. While the changes are not significant, the means test is an unforgiving task-master, and if you miss it by even $1, the presumption arises that your Chapter 7 bankruptcy is an abusive filing subject to dismissal by the Court under 11 U.S.C. § 707.

What are the numbers? For a given household size, the median income prior to November 1, 2009 is as follows:

STATE 1 PERSON 2 PEOPLE 3 PEOPLE 4 PEOPLE *
California $49,182 $65,097 $70,684 $79,971

* Add $6,900 for each individual in excess of 4.

After November 1, 2009, the median income for a given household size is as follows:

STATE 1 PERSON 2 PEOPLE 3 PEOPLE 4 PEOPLE *
California $48,140 $64,878 $70,890 $79,477

* Add $6,900 for each individual in excess of 4.

The change in median income is broken down as follows:

STATE 1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *
California -$1,042 -$219 +$206 -$494

Again, while this is not a significant change, it does not bode well for the future as median incomes tend to trail behind the economic recovery, so it can be anticipated that at least one more year of decrease in median income will happen even after we see a recovery. Especially hard-hit are households with one individual. A $1,042 decrease in median income represents 2% decrease over last year’s median income.

In effect, due to this quirk in the 2005 BAPCPA, in rough economic times, the law actually just made it harder for wage earners to qualify for chapter 7 bankruptcy relief. The good news is that with a thorough review of your financial circumstances, you may still qualify for relief under Chapter 7. This review, however, does require comprehensive financial data, and an attorney familiar an experienced with the deductions allowed under the BAPCPA.

Be sure that you select an attorney intimately familiar with the means testing, BAPCPA and other bankruptcy and non-bankruptcy laws as they can dramatically impact the outcome of your case.

David L. Gibbs is an attorney with The Gibbs Law firm, APC. The firm’s practice focuses on issues related to Bankruptcy, Business Law and Manufactured Housing; including community subdivision, pre-purchase diligence and analysis as well as advising community owners on operational, financial and enforcement issues. The firm also represents manufactured home dealers in a wide range of issues. David L. Gibbs is admitted to the Federal Courts for the Central and Southern District of California, and also holds a California real estate broker’s license. The firm continues to offer a wide range of real estate and business related services as it has done for 34 years from its offices in San Clemente. Mr. Gibbs can be reached at (949) 492-3350.

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