What does it mean if I am above median income?
As part of the statutory scheme of bankruptcy means testing, all individuals who file bankruptcy are sorted into above and below median income debtors. The dividing line is the median household income level, for the state of residence and the household size. These numbers are published by the United States Trustee, typically twice a year.
A common concern is that being above median income means a person cannot file bankruptcy. This is not the case. All chapters of bankruptcy can be available to an above median income debtor, including chapter 7 bankruptcy. Income amount alone is not an eligibility barrier, but instead determines what rules determine chapter 7 eligibility and terms of a chapter 13 plan.
Above median income and chapter 7 bankruptcy
If one is above median income in a chapter 7 bankruptcy, this invokes the requirement to complete and pass the chapter 7 means test. The means test is supposed to determine "disposable income", and does so by setting out certain standardized deductions (such as utilities and car expense) and certain allowable actual expenses (such as mortgages and child care). If a person is above median income, and the deductions are inadequate to keep disposable income below a set threshold, chapter 7 bankruptcy will be normally not available. Note that if a majority of debts are non-consumer, the means test doesn't apply regardless of above-median status.
To be clear, many above median individuals file chapter 7 bankruptcy successfully. The means test is complex, and questions about eligibility are best answered by one-on-one consultation with a bankruptcy attorney.
Above median income and chapter 13 bankruptcy
In chapter 13, there are two significant effects of a debtor being above median income. First, the length of the chapter 13 plan will normally need to be 60 months (5 years). This is in contrast to a below-median case, where plan length may be between 36 months and 60 months.
Second, disposable income for purposes of paying unsecured creditors (such as credit accounts and old bills) in the chapter 13 plan is calculated differently. When a debtor is above median income, disposable income is calculated using means test deductions, largely similar to the mechanism used to determine chapter 7 eligibility. Disposable income for a below median income debtor is based off of actual reasonable expenses.
Practically speaking, it is unusual to find a below median individual who does not have actual reasonable expenses that consume all of his or her income. So, paying money to unsecured creditors on account of income in chapter 13 bankruptcy is largely left to above median income debtors. At the same time, many above median income debtors will have no disposable income under the means test, especially if they have car loans or other expenses that are viewed favorably by the means test.
Just as with chapter 7 bankruptcy, above median status changes the rules for chapter 13 bankruptcy, but doesn't necessarily mean a favorable chapter 13 plan won't be available.