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"Means Test"

Related Keywords: $200 clunker allowance . Applicable commitment period . IRS standards . means test allowances . means test exclusion . median income .


Definitions from the USDOJ

  • current monthly income: The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. ? 101(10A).
  • means test: Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.

Case Law Topics

  • Chapter 7: Is Ch 7 Means Test Applicable to conversions from failed Chapter 13?

    The new law can pose a catch 22 for debtors if the means test forces them into Chapter 13 although their actual disposable income is inadequate to fund a Chapter 13 plan. Some courts have held that this Catch 22 is avoided by ruling that the Chapter 7 means test is not applicable to cases "Filed under" chapter 13 and then converted to Chapter 7

    For converted cases, the case law appears to agree that the six-month income measurement period is based on the date of the filing of the original petition: conversion does not reset that date.

  • Local Standards: Vehicle Ownership/Lease expense allowance -- contingent on existence of loan or lease obligation? (i.e. if owned free and clear)

    The Supreme Court ruled in January 2011, that the Means Test Vehicle Ownership allowance is contingent on existence of loan or lease obligation. In other words, if you own a vehicle "free and clear" and are not making any payments, you cannot claim the ownership deduction. (Ransom v. FIA Card Services, __ U.S. ___ (S.Ct 2011 ) )

    Before the Supreme Court settled the issue, lower courts were split on this question.

    Note that lower court cases that deny the allowance often mention that debtors can claim a $200 extra operation deduction for vehicles over six years old with more than 75K miles (based on the IRS practice of doing the same).

  • Income: Pension income vs. IRA withdrawal, etc.

    Are distributions from an IRA treated as "income" for purposes of CMI

  • Income: Martial adjustment does not include ALL of non-filing spouse's income -- just that portion that contributed to household expenses.

    Form 22A, utilizing the definition in 101(10A)(B), and 707(b)(7)(A) and (B), includes the non-filing spouse's income for means testing purposes. See Official Form 22A, Lines 3-10.

    However, the debtor is allowed to deduct, as a marital adjustment, the amount of the non-filing spouse's income that was not regularly contributed to the household expenses of the debtor or the debtor's dependents.
    See Form 22A, Line 17.

    These cases discuss how that deduction works in specific cases.

    Particularly when circumstances have changed during the six-month lookback period.

  • Household Size & Joint Custody

    Whether you count your joint custody kid as part of your household because they don't have a column for 1.5 people...

  • Household Size & Unborn Children

    Household size matters a lot in the means test. Do you count your unborn child as part of your household? -- because the child WILL be part of your household during the future five years in which you would be paying into a hypothetical Chapter 13 plan...
    Household size matters for purposes of median income, and for the amount of the expense allowances you are allowed according to the IRS tables.

  • Household Size: Deceased Spouse

  • Household Size: Live-in Relatives & Roommates

    Some courts follow the Census bureau's "heads on beds" test Ellringer (who was in the household on the filing date). Other courts look to the definition of dependent from the IRS. You need to know what theory your jurisdiction follows. Here are a few selected cases. If you meet both tests, you're probably fine. Note that the U.S. Trustee's office advocates the IRS dependents test, but it depends on what your judge thinks.

  • Income: Are unemployment compensation payments included in income or part of "social security"

    This issue can depend on state law determinations of how state unemployment insurance is classified.

    It is undisputed that Social Security monies are not income. (11 U.S.C. 101(10A)(B). )

    The question is whether unemployment insurance is considered a social security benefit under state law.

  • Income: CMI six-month window: When is income "received?" When earned? When paid?

    Current Monthly Income
    New subsection 10A of 101 defines "current monthly income" as the average monthly income received by the debtor from all sources during the six calendar months preceding the filing. (The six-month period ends on the last day of the calendar month preceding the filing. )

    "Current monthly income" includes amounts regularly paid by other entities to defray the debtor's household expenses. Therefore, child support receipts are included as income without reference to their treatment by the Internal Revenue Code.
    "Current monthly income" does not include payments received under the Social Security Act, payments to victims of war crimes or crimes against humanity, or payments to terrorism victims.
    The debtor's current monthly income is no longer a snapshot of income on the date of the commencement of the case. Because it is an average of the debtor's income over the previous six calendar months, interesting anomalies may occur. For example, debtors who experience a dramatic reduction of income immediately prior to filing may fail the means test because their higher income is included in the calculation. In such instances the debtors would be required to show "special circumstances," like the loss of the higher paying job, to rebut the presumption of abuse. (Section 707(b)(2)(B)(i) requires the debtor to show "special circumstances" justifying a reduction of income or additional expenses in order to rebut the presumption of abuse. )

    In Chapter 13 Cases
    "Under the law predating BAPCPA, a chapter 13 plan may not be confirmed over the objection of the trustee or an unsecured creditor unless the debtor either pays unsecured creditors in full or devotes all "projected disposable income" to the plan for at least three years. Section 1325(b).
    BAPCPA makes several important changes in the calculation of disposable income,

    If the debtor's annualized current monthly income is larger than the State's median, allowable expenses are determined as provided by the means test under 707(b)(2).
    Conversely, if the debtor's annualized current monthly income is smaller than the State's median, then allowable expenses are those that are reasonably necessary for the maintenance and support of the debtor and the debtor's dependents without reference to 707(b)(2)importing for some purposes the provisions of 11 U.S.C. 707(b)(2) allowances and calculations.

    Finally, the BAPCPA introduces a new term in 1325(b)(1)(B): "applicable commitment period." If the annualized current monthly income of the debtor and the debtor's spouse is above the State median, the debtor must pay all disposable income into the plan for a five-year period. However, if the annualized current monthly income of the debtor and the debtor's spouse is below the State median, the debtor must pay all disposable income into the plan for only three years. "

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