Question

Use the following table to help answer the question below.
State
Single-Earner
2-Person
3-Person
4-Person
Florida
$41,226
$52,259
$58,574
$69,009
Georgia
$40,691
$55,258
$61,104
$68,502
Missouri
$39,645
$51,568
$60,371
$71,059
Texas
$38,940
$55,859
$59,222
$66,381
Virginia
$48,362
$65,122
$74,151
$85,939

A couple has two children. They live in Missouri and have a combined annual income of $96,730. The couple has a mortgage, a car loan, student loans, and credit card debt. When one of them loses employment, their monthly income is reduced by $2,100. If they felt the need to file for bankruptcy, which of the following statements is true?
a.
They could file for Chapter 7 bankruptcy and discharge all of their debt.
b.
They could file for Chapter 7 bankruptcy and discharge most of their debt.
c.
They could file for Chapter 13 bankruptcy and discharge all of their debt.
d.
They could file for Chapter 13 bankruptcy and discharge some of their debt.

Answer 1

Answer: d.

Reason: For a 4-person household in Missouri the median income is $71,059. Their original combined income ($96,730) — and even after a $2,100/month ($25,200/year) drop (96,730 − 25,200 = $71,530) — remains slightly above the state median. That means they generally fail the Chapter 7 means test and would need to proceed under Chapter 13, which reorganizes repayments and can discharge some (typically unsecured) debt after completion of the plan. (Secured debts like a mortgage and car loan survive unless repaid/reaffirmed, and student loans are rarely discharged except for undue hardship.)