As of November 1, 2010, Filing for Chapter 7 Bankruptcy Will Become Harder or Easier (Depending on Your State of Residence)

October 22, 2010

By: David M. Serafin

For chapter 7 and chapter 13 matters filed in Colorado (and all states nationwide) under the new bankruptcy laws, the United States Trustee (which is a branch of the U.S. Department of Justice) has released new median family income numbers.

In some states, lower median income numbers will translate into some debtors being pushed into chapter 13, as “above median debtors” are presumed to have sufficient income to pay back some or all of their debts to unsecured creditors in a chapter 13. Lower median income numbers will also mean higher chapter 13 plan payments made to the trustee for the benefits of the unsecured creditors. Consistent with the spirit of the rather harsh “new bankruptcy laws” promulgated with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the revisions will make avoiding a “presumption of abuse” even more difficult for chapter 7 filers.

But, as for residents of other states, higher median family income numbers will allow more bankruptcy filers to avoid any “presumption of abuse” and otherwise qualify for chapter 7, which allows for a quicker, simpler and easier means to eliminate most types of unsecured debt. For those already pushed into a chapter 13 (or who prefer a chapter 13 for reasons unrelated to median income), higher median family income numbers will at least mean lower chapter 13 plan payments made to the trustee (and less money paid to unsecured creditors).

In Colorado, the new median family income numbers are mixed and should be of little or no consequence to the overwhelming majority of bankruptcy filers. The revised numbers in Colorado are listed in the chart below:

As the pre-October 31 numbers indicate, the median income difference in Colorado between a 1 versus 2 person household is considerable, much more so that that between a 2 and 3 person household. The November 1 median income revisions in Colorado attempt to lessen this discrepancy. Please note that you are not necessarily disqualified from chapter 7 eligibility in Colorado should your median family income exceed these numbers. Rather, you can still pass the Means Test, which factors in various budgetary expenses if such allowable expenses meet a particular threshold.