The Means Test is Required for Chapter 7 Bankruptcies
If you are an individual debtor with primarily consumer debts then you are required to calculate your current monthly income and expense deductions under a means test.
The bankruptcy code defines income as income from all sources without regard to its taxable nature. It also includes contributions to household expenses from any entity received by debtor on a regular basis.
A Chapter 7 debtor is required to include the means test calculations in the bankruptcy schedules filed at the beginning of the bankruptcy case. A Chapter 7 debtor whose debts are not primarily consumer debts must also file the means test form after checking the box that their debts are not primarily consumer debts. The means test schedules require that the debtor check a box on the form that a presumption of abuse either does, or does not, arise. If the form indicates that a presumption of abuse exists, the court clerk is required to send a notice to all creditors within 10 days of filing the petition that a presumption of abuse exists.
The trustee will review all schedules and documents, and if abuse is presumed, the trustee will file a statement to that affect with the clerk of the bankruptcy court within 10 days after the meeting of creditors. The clerk will mail the statement to all creditors within 7 days of filing. The trustee is required to bring a motion to dismiss, or file a statement explaining why a motion is not filed. A creditor may also bring a motion to dismiss.
Debtors who do not meet this standard may not file a Chapter 7 or they may be subject to a dismissal hearing. In the alternative, the case would be converted to a repayment plan under Chapter 13.
If a debtor’s income falls below the state median qualifying the debtor to file Chapter 7, creditors do not have the standing to file a motion to dismiss.
Means Test Calculation
The means test calculation consists of six steps:
- Step 1: Determine debtor’s current monthly income (CMI) and annualized current monthly income (ACMI) and compare with the median income schedule.
- Step 2: Determine necessary expenses allowed under IRS standards.
- Step 3: Determine additional expenses.
- Step 4: Determine secured debt expenses and priority claims.
- Step 5: Determine net current monthly income (CMI).
- Step 6: Determine if a presumption of abuse exists.