Bankruptcy Law Firm

SMARTblog Website

  • About Us
  • Blog
  • Chapter 7
  • Chapter 13
  • Testimonials
  • Contact Us
You are here: Home / Archives for U.S. Trustee

What Is Your State for the “Means Test”?

March 25, 2016 by Mikel Erdman

You must use the right “state in which you live” to qualify for Chapter 7. It’s not always obvious.

 

Our last blog post a couple days ago was about the unique definition for “income” as used in the “means test.” Understanding this definition and applying it to your advantage can be crucial for passing the “means test” and qualifying for Chapter 7 “straight bankruptcy.” (See that most recent blog post to calculate your own annual “income” amount.)

As we said, the “easiest way to pass the ‘means test’ is for your family ‘income’ to be no greater than the median family income amount for your family size in your state.” And we provided a link to a table of all the median family annual income amounts (effective starting April 1, 2016) for every state and family size.

But as we asked at the end of our last blog post, what if, after going through the steps of calculating your “income,” you’re not sure what state you should pick on the table of median family income amounts? What if you’ve moved recently? What if you have a business operated out of one state but you own a home in another state and live there much of the time? Or what if you’re married but maintain households in two states?

Different State Median Family Income Amounts Can Vary Significantly

If your life straddles two (or more!) states, it can make a big difference which state you use for the “means test.” For example, if you are single without any dependents, the state with the lowest annual “median family income” is Mississippi at $37,590 and the highest is New Jersey at $61,347, more than 63% higher. Or, if you have a family of 4, the lowest is Arkansas at $60,549 and the highest is Massachusetts at $111,595, more than 84% higher.

The Bankruptcy Code Doesn’t Say

For people who have lived and worked in the same state for years, it’s obvious what state they belong to. But if you have either moved recently or have personal or business connections in more than one state, it could be anything but obvious.

Federal bankruptcy law can be quite clear about which state you choose in dealing with other bankruptcy choices.

For example, the state in which you can file bankruptcy is wherever your “domicile, residence, principal place of business… , or principal assets.. .  have been located” for at least 91 days before the filing. (See 28 U.S.C. Section 1408.)

Or you can use a state’s property exemptions to protect your assets usually after 2 years of having your home in that state. (See 11 U.S.C Section 522(b)(3)(A)).

However, when Congress created the “means test” in the U.S. Bankruptcy Code, it only said that you compare your “income” to the “median family income of the applicable State.” The statute (11 U.S.C Section 707(b)) does not say anything about how to determine your “applicable State.”

The Bankruptcy Code’s definition of “median family income” (11 U.S.C. Section 101(39A)) does not address this. The phrase “applicable state” is simply nowhere defined by statute.

The “State in Which You Live”

The official bankruptcy form used to determine your “income” for “means test” purposes is called the “Chapter 7 Statement of Your Current Monthly Income,” Form 122A-1. It then has you compare your “income” to the appropriate median family income amount. This form asks you (at question 13) to “[f]ill in the state in which you live.”

The U.S. Trustee’s Office, part of the U.S. Department of Justice, is the major enforcer of the “means test.” One of its tasks is to see whether the above form is completed appropriately. It has put out a “Statement of [It’s] Position on Legal Issues Arising under the Chapter 7 Means Test.” On the issues we’re dealing with here, this Statement says simply that “[a]pplicable state is [the] state of residence at filing.”

What This Means in Practice

The implication of all this seems to be that you should use the median income amount for your family size for the state where you are living at the time your bankruptcy case is filed. It seems that if you are filing bankruptcy in a particular state because that is where you operate a business or it’s where you are domiciled (your permanent home even if you’re not there now), you wouldn’t use that state’s median family income amounts. Rather you can and must use the median family income amounts for the state where you are currently living.

But the law is vague. The U.S. Trustee’s Office’s Statement is only one opinion, even if it’s from an important source. These kinds of vague matters in the law are often left to local practices. These may be formal—local or regional federal court rulings. Or they may be informal—just the way a particular regional U.S. Trustee’s Office or local bankruptcy judge or judges tend to interpret this vague language in the bankruptcy statutes, the “applicable state.”

This is one of the reasons that you need the advice of an experienced bankruptcy lawyer. He or she has spent years, all day every day, immersed in not just the national bankruptcy statutes and rules, but also in nuts-and-bolts-policies and practices of local judges and other players in the system. Since choosing the right state can make the difference between qualifying for the 3-4-month-long Chapter 7 case instead of being stuck in a 3-to-5-year Chapter 13 one, the advice of a lawyer could be extremely valuable here.

 

Filed Under: Qualifying for Bankruptcy Tagged With: Chapter 7 bankruptcy, means test, median family income, median income, monthly disposable income, U.S. Trustee

Next Page »

Contact Information

Bankruptcy Law Firm
1000 E. Law St.
Cash, California 55555
Business: 123-456-7891
Day Hours
Monday 9:00 AM to 5:00 PM
Tuesday 9:00 AM to 5:00 PM
Wednesday 9:00 AM to 5:00 PM
Thursday 9:00 AM to 5:00 PM
Friday 9:00 AM to 5:00 PM
Saturday Closed
Sunday Closed

Our Clients Words

Michael's service is second to none. I'm fortunate to have selected his firm to represent us in this serious matter.
— Clyde Drexler

I've had so much fun as a judge on American Idol this year. I just hope the censors let me back on so I can sing, sing, sing!
— Steven Tyler

I love baseball, apple pie and Chevrolet. By the way, I'm hitting it straight outta this park!
— Babe Ruth

It's been a wild trip so far. I can't wait to see what's right up around the corner. Thanks for the surprises!
— Terry Bradshaw

Recent Posts

  • Bankruptcy Helps You Sell Your Home
  • More Bankruptcy Advantages with the Foreclosure Moratorium
  • Bankruptcy Advantages with the Foreclosure Moratorium
  • Short Extension to Foreclosure Moratorium
  • Student Loan Moratorium Extended through September 2021

Archives

March 2021
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
293031  
« Feb    

Copyright © 2021 · Powered by MySMARTblog