Newest Means Test Numbers Go Up

Unlike the last revision of Means Test numbers, the median numbers for all household sizes have gone up, some of them fairly significantly. This will help many debtors who want to file under Chapter 7 rather than getting into the long slog of a 5-year Chapter 13 Plan.

Here are the new Wisconsin median income numbers for cases filed on or after April 1, 2024.

One person household: $66,106 (increase of $2,614)

Two person household: $82,346 (increase of $3,256)

Three person household: $101,490 (increase of $4,013)

Four person household: $122,571 (increase of $4,846)

Add $9,900 for each individual in excess of four. (no change)

A debtor filing under Chapter 7 submits a Means Test to the Bankruptcy Court that provides annual income based on the debtor's gross income in the six calendar months prior to filing. In other words, take your income in the 6 calendar months prior to filing and multiply by 2 and that is the income that is compared to the above median income numbers. You must include all sources of income other than Social Security and military disability income. For example, wages, capital gains, business profits, Foodshare, unemployment, child support, gifts, blood plasma, and many other kinds of income are included. If the Debtor's income is below the above median numbers for their household size, they will almost always be able to proceed under Chapter 7. But, if it appears to the U.S. Trustee that the Debtor could afford to be in a Chapter 13 even though the Debtor passes the Means Test, then the U.S. Trustee may object to the debtor being able to get a discharge in a Chapter 7 case. In that case, the Debtor would usually convert to a Chapter 13 case. The Debtor does have the option of opposing the U.S. Trustee's objection, in which case, a bankruptcy judge would make a decision. If you are above the median income, it is possible to proceed under Chapter 7, but your Means Test would become much more complicated. Certain types of debts and expenses can be taken into account that could allow a debtor with an above median income proceed under Chapter 7. In my experience, debtors above median who are allowed to proceed under Chapter 7 are usually those with very large tax and/or child support debt. Means Test issues can be very complicated. If you have questions about the bankruptcy Means Test, call us at (608)718-0497.

Will Student Loans Become Easier to Discharge in the Near Future?

The Department of Justice recently announced a new process for handling cases in which individuals seek to discharge their federal student loans in bankruptcy. The DOJ's stated goal is “to ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate.”

In their press release the difficulty of overcoming the “undue hardship” standard for student loan discharge and the role of the bankruptcy judge in making the final decision in conceded, but under the new process the DOJ's lawyers would be better able to “recommend discharge to the judge without unnecessarily burdensome and time-consuming investigations. The new process will also help borrowers who did not think they could get relief through bankruptcy more easily identify whether they meet the criteria to seek a discharge.”

The undue hardship test considers “the borrower’s past, present and future financial circumstances.” Under the new process the DOJ will review information provided by the Debtor and the Department of Education and “apply the factors that courts consider relevant to the undue-hardship inquiry and determine whether to recommend that the bankruptcy judge discharge the borrower’s student loan debt.”

The process to get a federal student loan discharged in a bankruptcy starts with the filing of a lawsuit by the Debtor in the bankruptcy court against the Department of Education. A government attorney is assigned to the case and in the past often seemed to take a default position of opposing the discharge.

My reading between the lines is that the DOJ seems to be indicating that they will be making an effort to make it easier to get some student loans discharged. Instead of seeming to take a default position of almost always opposing federal student loan discharges, they will be more likely to recommend discharge than they have in the past. However, bankruptcy judges could continue to use a strict interpretation of the "undue hardship" standard and rule against discharge as readily as they have in the past.

Bankruptcy Filings Holding Steady

A quick look at case numbers assigned in the U.S. Bankruptcy Court for the Western District of Wisconsin shows that bankruptcy case filings appear to be very similar to the number filed a year ago. Bankruptcy Case No. 22-10109 was filed on January 28, 2022. Bankruptcy Case No. 23-10109 was filed on January 27, 2023. The first two digits in a case number indicate the year that the case was filed. The last 4 digits indicate the number of cases filed in the district up to that point in time. Conventional wisdom that I often heard since the covid pandemic started was that bankruptcy filings would go up. However, that did not happen. A likely reason it didn't happen was that usual collection activities slowed down due to moratoriums such as on evictions and foreclosures, and there continues to be a moratorium on student loan payments.