Income Median Levels & Bankruptcy

One of the driving thrusts behind the 2005 Bankruptcy Reform laws (known as BAPCPA) was an effort to make it more "difficult" to file for Chapter 7 bankruptcy. There were several reasons and rationales behind this, not the least of which were credit card lobbying efforts, but the end result was the desired result: it has become more difficult to file for Chapter 7 bankruptcy because of income median levels.

These levels, unique to each state, are based off statistics generated from the Internal Revenue Service. These are the maximum levels, supposedly, that a person can make and still file bankruptcy. In Illinois, a single person household can earn $47,485 and qualify, a two person household can earn $59,861 and still qualify, a three person household can earn $68,721 and qualify, and so on. Keep in mind, this is household income, meaning that even if you aren't married but live with your girlfriend or boyfriend, that income is required to be part of the analysis. The theory is that if you can't meet these income levels you should file Chapter 13 and pay back some or all of your debt.

Debtors do have the ability, though, to crunch their numbers through the Means Test to see if they can qualify for Chapter 7 even though they make above the income median level. This test allows the inclusion of all sorts of regular expenses, from payroll taxes to costs to educate minor children. If the debtor still cannot get under the income median level after some thorough means test analysis, then it is time to begin discussing Chapter 13 options.

The BAPCPA laws of 2005 made even filing for Chapter 7 more complex. It is best to consult an experienced bankruptcy attorney to guide you through the stressful, arduous, and complicated process.