Calculating Current Monthly Income And The Means Test |
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BAPCPA imposed an eligibility test to determine whether a debtor may be allowed to file for, and obtain, a Chapter 7 discharge. It is known as the "Means Test'". If a debtor does not pass the means test once it is invoked then there is a "presumption of abuse" (Sect. 707(b)(2)) which may prevent the debtor from filing the Chapter 7 case or may force the case to be dismissed or, with the consent of the debtor, have it converted to a Chapter 13 case (Sec. 707(b)(l)). Many people believe that this test prevents most people from filing a Chapter 7 case or getting a discharge, however this is incorrect. The test does make it harder for everyone to file a case due to more complex filing requirements, but the means test will not prevent most debtors who need to file from filing for Chapter 7 relief. The provisions of the means test are not even invoked unless the debtor's annual household income exceeds the Median Family Income as determined by the US Census Bureau. Due to the strict income eligibility requirements of the Consumer Bankruptcy Project (the family gross income may not exceed 200% of the Federal Poverty Level) that will rarely, if ever, occur. It is the debtor's burden to prove that their income is below the median family income level, but once they do that the means test will not be a factor and they will be eligible to file for Chapter 7 relief. As a result, in order to advise a client about whether to proceed with a consumer bankruptcy, and which type of bankruptcy, you must first determine their "current monthly income". Section 101 (l0A) of the Act defines the "current monthly income" as the average monthly income the debtor received from all sources (regardless of whether they are taxable, except payments received under the Social Security Act and a couple of other exceptions) during the last six (6) months ending on the last day of the month immediately preceding the date of commencement of the case (e.g., for a case filed January 2011, it would be the average of what was earned during the six months from July 1, 2010 through December 31, 2010). Sources of income include the debtor's gross wages, commissions, and income paid on a "regular basis" (pensions, etc.) for the debtor's household expenses or those of his dependents. In the case of a married couple, where only one spouse is filing, unless they are legally separated or living "separate and apart", it also includes the income of the non-filing spouse. Countable income does not include any payments made to the debtor or their spouse, or dependents, under the Social Security Act such as retirement, disability, survivors or S.S.I. benefits. It does not include TANF (public assistance) payments or Unemployment Insurance Benefits. It also does not include payments made to victims of war crimes, crimes against humanity and international terrorism. |
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The Means Test
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