The latest numbers used in means test for the San Francisco Bay Area after April 1, 2020 are out. They reinforce my contention that the means test is meaningless for most in Northern California.
Bankruptcy’s means test was sold to Congress in 2005 as a way to make sure those filing bankruptcy really needed relief.
It added expense and complexity to bankruptcy, which was what the drafters secretly wanted. They’d heard this story of people casually filing bankruptcy to avoid the inconvenience of paying their bills.
Of course, that was a myth; but that’s another story.
The income dividing line increases
Those whose gross family income is below the median get a pass on the means test. It simply doesn’t apply to below median income debtors.
Median: the middle number in a sequence of numbers
The median income for a family of four this spring in California is $ 101,315.
Make less than that, exclusive of Social Security, and you are free to file bankruptcy without taking the test.
Housing costs drive the bus
If you make more than the median income, the means test applies. That doesn’t mean you can’t file bankruptcy.
It just means you have another hoop to jump through.
The means test formula purports to calculate how much money you have available each month after paying essential expenses.
The ugly truth for this high-cost part of the world is that housing eats up far too much of our budgets.
Lets assume you are just over the median income line and gross $102,000 a year, a fine salary in many places, but not really enough here.
The folks at the Census Bureau, who supply the bankruptcy system the numbers that drive the means test, say it costs $4173 a month to house a family of four in San Mateo County.
That’s almost half of the gross monthly income of a $102,000/year household. Not much is left to pay for food, clothes, medical care and transportation.
Good news, bad news, there’s nothing really available to pay creditors, inside or outside of bankruptcy.
So bankruptcy is available because you’ve passed the means test.
Mortgage payments deductible
The same calculus applies to homeowners: over median families can deduct monthly mortgage payments, property taxes, HOA dues, and hazard insurance from their gross income in doing the means test.
Again, those expenses tend to swallow up a huge part of most incomes.
Leaving little or nothing for creditors.
And leaving you the choice of which chapter of bankruptcy furthers your goals.