Median Income Test Under BAPCPA

As many of you are aware, a new bankruptcy bill took effect on October 17, 2005. This bill radically changed personal bankruptcy practice; however, economic conditions and the overwhelming amount of credit card debt that many individuals have continue to necessitate personal bankruptcy filings.

In order to file for chapter 7 bankruptcy protection, a person must (1) be current on their most recent federal tax return filing, (2) have taken a pre-bankruptcy filing credit counseling class and obtained a certificate of completion and (3) have passed the median income test. The balance of this email will be dedicated to the median income test.

If a single individual in New York State has gross income of less than $39,463, then they qualify for chapter 7 bankruptcy. As with many aspects of the bankruptcy bill, the "Median Income" calculation is complicated and is as follows:

1. Add up the persons gross income for the current month and the previous five months.
2. Subtract from this amount any Social Security payments and awards for being the victim of a crime or a terrorist act.
3. Take this total and divide it by 6 to obtain the Current Monthly Income (CMI).
4. Multiply the CMI by 12 to obtain the Annualized CMI.
5. If the Annualized CMI is less than the Median Income ($39,463.00 for a single individual), the individual qualifies for chapter 7 bankruptcy.
6. If the Annualized CMI is greater than the Median Income, then a "Means Test" is required to determine if the individual is eligible for Chapter 7 bankruptcy.

A future email will be dedicated the "Means Test". Additionally Shenwick & Associates revised website pertaining to personal bankruptcy under the new bankruptcy bill is under construction and will be finished shortly. Any person with questions regarding the new bankruptcy bill should call or email Jim Shenwick.