2014 Minnesota Median Income (effective for bankruptcy cases commenced on/after November 1, 2014 and through April 2015)

For the 2015/2016 median income, click here.

Median income is a critical measure upon which the ‘Means Test’ is largely based to determine whether a debtor qualifies for Chapter 7 bankruptcy versus Chapter 13. Essentially, if a debtor’s annualized gross income exceeds the median income for their household size and state of residence, they are generally (but not always) ineligible for Chapter 7 bankruptcy and instead steered toward a five-year Chapter 13 repayment plan.  In Chapter 13, median income also determines whether a debtor is required to do a 5-year plan (when above-median income) or 3-year plan (when below-median income).

It’s also important to note that annualized gross household income is determined by doubling all household income from all sources for the last six full calendar months prior to filing bankruptcy. Chapter 13 bankruptcy is a more likely outcome than Chapter 7 when this annualized income is above the applicable state median income. The Means Test calculation and eligibility for Chapter 7 is more complicated than simply a measure against median income and other factors including mortgage payment as well as arrears, taxes owed and domestic support obligations, and a number of other factors also figure into the means test calculation.

As of November 1, 2014, the Median Income in Minnesota is as follows:

2014 Minnesota Median Income per applicable Household Size:         

1 Person          2 People          3 People          4 People          5 People

$50,121           $65,503           $79,750           $93,294           $101,394 

State median income is determined by Census Bureau data and adjusts at least annually. The latest adjustment is effective November 1, 2014 and the next adjustment date is expected approximately April 2015.

To learn more about Median Income and the Means Test, see What is the Median Income in Minnesota and How Does is Factor into Chapter 7 Bankruptcy and What is the “Means Test” and Why Does it Matter in Bankruptcy.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota.

 

What is the Median Income in Minnesota and How Does is Factor into Chapter 7 Bankruptcy?

Qualification for Chapter 7 bankruptcy is largely determined by comparing one’s household income to the median income for their state. Essentially, if your gross annual household income exceeds the Minnesota median income for your family size you may not qualify for Chapter 7 and may be required to file Chapter 13 instead. Therefore, the Minnesota median income is a significant factor in determining whether you may qualify for Chapter 7 bankruptcy or if you may be instead steered toward filing a five-year Chapter 13 repayment plan. As of 11/01/2015, the median income in Minnesota for a household of one person is $51,199, for two people $68,515, for three people $80,804, and $98,447 for four people. The median income adjusts at least once per year and these amounts reflect the median income as last adjusted on November 1, 2015 which will again be adjusted in April of 2016.

If you fall above the median income, it’s important to understand that you may still qualify for Chapter 7 bankruptcy if certain factors are present—this is called “rebutting the presumption of abuse” in bankruptcy. These factors are part of a more comprehensive “means test” eligibility calculation and include such expenses as mortgage payments, tax payments, health care expenses, child care and child educational expenses, child support or maintenance payments, and a host of other variables that may be employed to qualify someone for Chapter 7 even if they are above the median income. In general, the higher over the median income a household falls, the less likely it will be to “rebut the presumption” and qualify for Chapter 7. In this case, your option is to file Chapter 13 bankruptcy, which can still be a good solution (see my blog on why Chapter 13 is not always a gloomy diagnosis in bankruptcy).

While some people seek out some of the unique advantages of Chapter 13 bankruptcy—including the possibility of cramming down a car loan, paying off mortgage arrears over five years or even stripping a second mortgage off a homestead—many people still prefer the ease and speed of Chapter 7. Nevertheless, the means test and the median income establish the threshold criteria for whether Chapter 7 or Chapter 13 may be filed, and usually there is little to no wiggle room from the strict results calculated by the means test.

The means test is complicated and often it’s best to have an experienced bankruptcy attorney calculate your household income based on the last six months of income, compare your number to the median income and prepare the means test calculation to determine what type of bankruptcy you may qualify for.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota. Contact Wartchow Law Office for a free bankruptcy consultation.

What is the “Means Test” and Why Does it Matter in Bankruptcy?

The “Means Test” was one of the major and most controversial additions to consumer bankruptcy law that occurred as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). Part of the congressional intent of BAPCPA was to limit a person’s ability to obtain Chapter 7 relief and instead direct them into filing Chapter 13. While there are many reasons why some consumer debtors actually prefer to file Chapter 13 bankruptcy, Chapter 7 is still widely available and common, only now with a few additional hurdles to pass.

These “hurdles” to qualify to Chapter 7 that were added in 2005 as part of BAPCPA are collectively referred to as the “Means Test”. In actuality, the Means Test is an 8-page calculation that determines one’s eligibility for Chapter 7 using criteria such as the debtor’s income (as based on the last six months), household size, expenses and any special circumstances that may justify relief under Chapter 7 bankruptcy. While many of the numbers used are drawn from IRS standard allowances for food, utilities, and similar routine expenses, a person’s actual payments made monthly on secured debts such as mortgages and car loans are included to reduce their income. Generally speaking, if a person has no disposable income remaining at the end of the month after payment of all these standard and actual expenses, they may qualify for Chapter 7.

However, if when the last six months of income is annualized (i.e., doubled) and the person falls above the median income for their household size and state, they are instead steered toward filing Chapter 13, which includes a monthly repayment plan. As of 11/01/2015, the median income in Minnesota for a household of one person is $51,199, for two people $68,515, for three people $80,804, and $98,447 for four people. The median income adjusts at least once per year and these amounts reflect the median income as last adjusted on November 1, 2015 which will again be adjusted in April of 2016.

Even if someone is above the median income for Minnesota, they may still qualify for Chapter 7 (also referred to as “passing the Means Test”) based on other circumstances.

One job of your bankruptcy attorney is to give you all your bankruptcy and non-bankruptcy options, including calculating the Means Test for you and advising you on whether you qualify for Chapter 7 or if you may want or need to file Chapter 13 instead.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota.

 

Chapter 7 vs. Chapter 13 Bankruptcy: A Primer

Most often the people that come to me for help in bankruptcy do not initially know the difference between Chapter 7 and Chapter 13 bankruptcy, which Chapter may be better for them or even which form of bankruptcy protection they qualify for.

The similarities between these two Chapters are fairly straightforward: both are forms of consumer bankruptcy protection that can discharge debts such as credit cards, medical liabilities, home mortgage deficiencies, personal guarantees and even taxes. Both Chapter 7 and Chapter 13 require that a petition and schedules be filed with the U.S. Bankruptcy Court for the District of Minnesota, listing all assets, creditors and certain financial information for the last two years. Both require one mandatory appearance with a bankruptcy trustee at what’s called the “341 Meeting of Creditors”. Both Chapter 7 and Chapter 13 bankruptcy  are eligible for a discharge of some or all of the debtor’s debts.

The differences are distinct and some of the forms of protection afforded under each Chapter need to be understood. Chapter 7 is what’s called a “straightforward” or “liquidation” bankruptcy: once filed, your assets are reviewed to see if you have non-exempt assets which need to be turned over to the trustee, and within three months a discharge of the debts is ordered. Chapter 7 has income qualifications under the “means test”, in that you generally must be around or below the median income for the state of Minnesota in order to qualify. As of May 1, 2012, the median income in Minnesota for one person is $47,618 or $63,101 for a household of two, $74,050 for a family of three, $86,910 for a household of four, and so on. If your gross household income is above this threshold, you are generally steered toward Chapter 13 bankruptcy instead.

Chapter 13 is distinctly different than Chapter 13 in that it requires a monthly payment of three to five years to be made to the Chapter 13 trustee under a Chapter 13 plan. After the successful completion of all monthly payments made under the Chapter 13 plan, the debtor is then discharged of any remaining debt. Unlike most Chapter 7 cases where creditors usually receive zero money, Chapter 13 affords most creditors some fractional repayment of the total amount owed. Determining the monthly Chapter 13 payment is something that your bankruptcy attorney will need to help determine using Minnesota standard allowances and some actual expenses, such as mortgage and car payments, domestic support obligations and other monthly liabilities that are not necessarily discharged in bankruptcy.

Most recently, homeowners have been taking more advantage of Chapter 13 bankruptcy to strip a second or even third mortgage on their homes. This is relatively new law in Minnesota and as of the date of this post is still pending on appeal in the 8th Circuit. Nevertheless, most other states recognize second mortgage stripping and Minnesota is following that trend. Your bankruptcy lawyer can help determine when a mortgage may be strippable in Chapter 13 bankruptcy.

In order to understand what form of bankruptcy protection is right for you and what you want to achieve long-term, you should consult a bankruptcy attorney for assistance that is specific to your situation. Wartchow Law Office is an exclusive bankruptcy practice offering free consultations to analyze your circumstances and offer practical guidance on your options in both Chapter 7 and Chapter 13 bankruptcy and even on-bankruptcy alternatives.

Located in Edina, Minnesota, Lynn Wartchow represents clients in all Chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout
Minnesota.