The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced the bankruptcy means test. The means test is required for individual debtors with primarily consumer debts who file under any bankruptcy chapter, but Chapter 7 bankruptcy in particular requires an individual to “pass” the means test. The Chapter 7 means test is intended to prevent people with a certain amount of disposable income (even as little as $150 per month) from discharging a large portion of their debt.
The bankruptcy means test is not always a cut and dried matter. Bankruptcy courts around the country – as well as the U.S. Supreme Court – have ruled on means test issues. Because the means test is a complicated aspect of bankruptcy law, and because you must pass the Chapter 7 means test in order to be eligible for a Chapter 7 discharge, it is important that you let a qualified Kansas City bankruptcy attorney assist you in preparing and filing your Chapter 7 means test.
Means Test Income
The Chapter 7 means test looks at a debtor’s income for the six months immediately preceding filing. If you file your case on Dec. 12, for example, then the means test will include income received during June 1 through November 30. Nearly all the debtor’s income is included in the means test – even gifts, gambling winnings or payments from a roommate. Typically, the only income not included in the Chapter 7 means test is Social Security income and loan proceeds.
If your “annualized current monthly income” is less than the applicable median income for your household size (which is based on the county and state in which you live), then you pass the means test and do not have to complete the rest of the form. If your income is more than the applicable median income, however, then you must complete the remainder of the means test form.
Means Test Expenses
The rest of the means test involves deducting allowable expenses. Only certain expenses can be deducted on the Chapter 7 means test, including but not limited to:
- Payroll taxes
- Mortgage or rent payments
- Secured debt payments
- Child support payments
- Health insurance premiums
- Mandatory retirement contributions
- Continued charitable contributions
- Education expenses for a child under 18
- Transportation costs
- Household utilities
For some expenses, the deduction is based on an IRS standard; for other expenses, the deduction is based on your actual costs. Determining what expenses you can deduct on the means test, as well as whether you must use the IRS standard or can deduct your actual cost, can be tricky. An experienced Kansas City bankruptcy lawyer can help ensure you deduct all allowable expenses.
Monthly Disposable Income
After all allowable expenses have been deducted from your means test income, your “monthly disposable income” remains.
- If your monthly disposable income multiplied by sixty is below a certain threshold, then you pass the Chapter 7 means test
- If your monthly disposable income multiplied by sixty is above that threshold but still within a certain range, then you multiply your total unsecured debt by .25, and if that amount is greater than your monthly disposable income multiplied by sixty, you still pass the Chapter 7 means test
- If your monthly disposable income multiplied by sixty is above that range, however, then the presumption of abuse arises, and the only way you can qualify for a Chapter 7 discharge is if you successfully rebut the presumption of abuse
You may be able to rebut the presumption of abuse under certain circumstances. If you are unable to successfully rebut the presumption of abuse, then the U.S. Trustee may file a motion to have your case dismissed or converted to a case under Chapter 13.
A knowledgeable Kansas City bankruptcy attorney at The Sader Law Firm can ensure your means test is completed thoroughly and accurately and can help you rebut a presumption of abuse if your circumstances warrant doing so. Contact us today to get the representation you need.