It’s that time of year again. It’s the twice-yearly time when median income figures are announced by the U.S. Trustee’s office. The figures are based on Census Bureau reporting.
The figures are important for two main reasons: First, generally speaking, if bankruptcy filers are below median income for their household size, the Bankruptcy Code allows them to file a Chapter 7 bankruptcy. Chapter 7 doesn’t require payments and it’s over in about four months. If the filer’s income exceeds median income, it gets more difficult to qualify for Chapter 7. Going over median doesn’t mean a Chapter 13 (a payment plan bankruptcy) would automatically be required, but it makes it more likely.
Second, if the filer is above median income and files a Chapter 13 (even in circumstances in which the filer would not be required to file a Chapter 13) the length of the Chapter 13 plan (the “applicable commitment period”) must be five years.
Unfortunately, we have two main bankruptcy choices in the U.S.: a five-month bankruptcy and a five-year bankruptcy. (Yes, I said Chapter 7 took about four months, but I like explaining the chapters in the “five-month vs. five year” manner, so stay with me here.)
All this is, well, pretty stupid, and the stupidity doesn’t stop there. The measuring period for determining median income is the six months prior to the month in which the debtor files. Get a one-time bonus of $5,000? The Code says your income is $10,000 higher than normal ($5,000 times 2) for the year. Get a gift? Same thing. Overtime that’s no longer offered? Yep, it’s counted times two. What about a job you no longer have? Sure, the Code counts that income, too.
We sent a man to the moon and yet came up with a system like this?
Yep. Still boggles my mind even after living with this craziness for 1o years. (The current Code went into effect in 2005.)
So what’s a man (or woman) to do?
The system lends itself to what I call “strategery.” (Full disclosure: I borrowed that term from an SNL skit.) For example, we simply wait to file bankruptcy until you get a more accurate six-month income measuring period. Sometimes even waiting from the 28th of one month to the 2nd of the next makes the necessary difference. Strategery.
At any rate, there’s good news in these latest figures. For most household sizes, median income has been increasing over the last couple of years. The other perversity of the Code is that as the economy gets worse and median income figures drop, the system requires more folks to file Chapter 13. For example, median income for South Carolina filers with a household size of four is now $67,641. If the economy got really bad, it might drop to $61,234. This would mean more filers would be means tested and any over that number would, if they filed Chapter 13, be required to file five-year Chapter 13 plans. I think the way to describe this would be “kicking someone while they were down.” And that’s what the system does.
Here they are by household size:
Household of one: $40,632
Household of two: $51,501
Household of three: $54,901
Household of four: $67,641
Add $8,100 for each person over four.