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New median income figures for the Means Test became effective on March 15, 2011. In Florida, the figures increased from the prior change(which had a significant reduction in median income).
The current Florida median income figures for a household of 1 is $40,029, for a household of 2 is $50,130, for a houshehold of 3 is $54,594, and for a household of 4 is $65,125. Each additional member of the household is an additional $7500.00.
As discussed more on my website, the starting point for the means test analysis is determining whether the debtor is above the median income for the state. The median income depends on the household size of the debtor.
The question is how do you determine the household size for the means test? A recent case summarized case law on the three approaches to determining household size. In re Morrison, 2011 Bankr. Lexis 103(Bankr. M.D. N.C. 2011). Several cases had used the “heads on beds” approach, which counts everyone physically residing in the debtor’s premises. A second approach is to only use individuals who could be dependents on a federal tax return. The court concluded that the first approach was too broad and the last approach was too narrow.
The court used the”economic unit” approach. Thus 2 roommates who are just sharing rent are really 2 separate households for means test purposes. But an unmarried couple with joint bank accounts sharing income and expenses would be a household of 2.
Which approach is best for a debtor? This depends on a case by case basis. If we include more members living in the same premises as part of the same household, the median income figure goes up and the allowed expenses also increase. However, then both incomes must be included.
In a recent court case decided by a panel of the three bankruptcy judges in the Miami division of the Southern District of Florida, the court held that a debtor who received a discharge in a chapter 7 and was not eligible to receive a discharge in a subsequently filed chapter 13 could not strip a second mortgage. In re Gerardin, 2011 Bankr Lexis 514(Bankr. S.D. FL. Feb. 17, 2011).
The court rejected contrary case law, but the decision does seem to be the prevailing view. The court also observed that it agreed with decisions finding that a second mortgage could not be stripped in a chapter 7. The decision is based on a technical reading of the statute(Section 506 valuation does not provide an independent basis to strip a second mortgage and chapter 13 does not provide any basis to strip a mortgage after discharge)
Debtors should be careful before filing a chapter 7 when they have a second mortage that could be stripped in a chapter 13. A debtor might not intend to keep his or her home in the long run, file a chapter 7, and then later wish they had filed a chapter 13. As a Ft. Lauderdale bankruptcy attorney in Broward County, I recognize that this is an important planning issue when deciding what chapter to file.
Note that a debtor can file a chapter 13 four years after filing a chapter 7 and would be eligible to obtain a discharge in the chapter 13, and thus strip a second mortgage.
