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Taking Apart the Median Income Tables

posted by Bob Lawless

As bankruptcy specialists know, after the 2005 bankrutpcy amendments it matters a lot whether a debtor is above or below the state median income for a household of the size of the debtor's household. The statute directs that this calculation is to be taken from Census Bureau statistics. The Executive Office of U.S. Trustee ("EOUST") compiles the relevant figures and puts them on its web site. Recently, the EOUST updated these figures, and an analysis reveals some interesting patterns and changes.

If one averages the median income figures across all fifty states, one gets the following figures:

 
Cases Filed
2/13/06 - 9/30/06
Cases Filed
after 10/1/06
Difference
1-person household
$38,835
$38,556
-$273
2-person household
$49,363
$49,410
$47
3-person household
$57,012
$57,290
$278
4-person household
$65,796
$66,004
$209

Amazingly, the average state median income for a one-person household fell by $278 for cases filed after October 1. Undoubtedly, the irony will be lost on Congress, which mandated that these figures be compiled because of rampant abuse of the bankruptcy system.

The averages mask some surprising patterns within individual states. In Alabama, for example, the median income for a one-, three-, and four-person household fell $1219, $4112, and $2490 respectively, but the median income for a two-person household rose $750. The median income for the District of Columbia fell across all types of households, including a drop of over 16% for two-person households. The median income for both three- and four-person households in the District of Columbia is the same ($54,628). Wyoming saw a 7.6% decline in the median income for 1-person households but a 9.2% increase for the median income of 3-person households.

Early experience indicates that the state median income figures will move up and down arbitrarily. All us Credit Slips bloggers are data junkies, and these fluctuations would be great grist for a discussion of how a few changes in the data can move the median. It might all even be amusing were it not for the reality that these figures determine the rights of real people in real cases. Bankruptcy debtors who are above the state median income must go through a complex analysis of their expenses and may be ineligible for chapter 7. The variation in the state median income figures deserves more attention than the space a blog post can give to the topic. Until then, these variations provide another example of the unintended and harsh consequences of the 2005 bankruptcy amendments.

A hat tip to Jean Braucher who brought this topic to the attention of the Bankr-L listserv. (Instructions for subscription requests appear on the right-hand side of the page.)

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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