Understanding The Median Income Test For Chapter 7 Bankruptcy

Milwaukee has a dynamic economy that includes some of the largest and best-known companies in the world. The city attracts new and innovative businesses every year. This does not prevent families from encountering financial problems. Sudden changes and emergencies can wipe away savings. Families in Milwaukee who have no other financial options can often file for a Chapter 7 bankruptcy. One of the key parts of filing for Chapter 7 is called the median income test. This determines eligibility for filing. Anyone considering this type of bankruptcy in Milwaukee should understand how the median income test works.

The median income test for Chapter 7 bankruptcy was originally developed as safety mechanism to protect the process from abuse. The main purpose is to prevent an individual from deciding to file for Chapter 7 bankruptcy when there is clearly enough income every month to make structured payments to creditors. The median income test provides a way to funnel households with high amounts of income into Chapter 13 bankruptcy where the creditors can be repaid fully or partially over a period of time.

Most of the calculations that occur during the median income test center around the income of the household. The exact number used is known as the current monthly income (CMI). This is calculated by combining the actual income from the last six calendar months excluding the current month. This number is divided by six in order to arrive at the CMI. Almost everything is considered income including payments for dependents, unemployment insurance payments and payments originating from investments or sales made outside of the six-month period. Items such as social security or emergency assistance provided through the city of Milwaukee are exempted.

The first part of the test involves comparing the CMI to the median income in Wisconsin. The median income is the average amount that a household of the same size earns during a single year. Individuals who have a lower CMI than the Wisconsin median will be able to file for Chapter 7 bankruptcy. Anyone who has a CMI that is higher than the median will need to move on to the next step in the means testing process.

The second part of the median income test involves determining disposable income. Determining disposable income means accounting for all expenses that need to be paid every month. Debts that are not part of the bankruptcy are considered as well. These debts include everything from mortgage payments to grocery bills. The CMI of the household is subtracted from the debt total. The result is the disposable income of the home. A very low or negative disposable income often means Chapter 7 is an option.

Failing the median income test frequently means that residents of Milwaukee will not be able to file for Chapter 7 bankruptcy. It can be very beneficial for households in trouble to consult with a Milwaukee bankruptcy attorney. An attorney can identify mistakes and omissions during the means test that could change eligibility. Additionally, individuals who do not qualify for Chapter 7 will need an attorney to explore other options such as a Chapter 13 bankruptcy.