The Means Test in Consumer Bankruptcy Cases
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Gain an understanding of the means test and who should be taking it.If you are or know one of the millions affected by COVID-19 due to job loss, a family death, or overwhelmed by unpaid bills and collection calls, then bankruptcy can provide you a fresh start. Many practitioners do not understand the details and information necessary to avoid the pitfalls of filing a Chapter 7 bankruptcy case. They also do not understand how to calculate income pursuant to the Bankruptcy Code in a manner that will satisfy the means test as is required by the amendments to the U.S. Bankruptcy Code introduced earlier this year. This topic will help one gain an understanding of the means test and who should be taking the test in light of recent amendments to the bankruptcy code. For those not yet familiar with consumer bankruptcy law, this information will give you the key law and procedural points that arise in connection with the means test. If you are already familiar with consumer bankruptcy law, this topic will refresh some of the fine points that may be traps for the unwary. The material will explain the step-by-step process in determining whether you are Chapter 7 eligible. Failing to have a proper accounting of income and expenses can result in the Chapter 7 case being dismissed or converted to a Chapter 13 case, which will could result in the loss of thousands of dollars.
AuthorsWendy Marie Weathers, Esq., Clair Gjertsen & Weathers PLLC
What Is the Means Test?
• Determine Eligibility for Chapter 7 Filing
• Based on Current Monthly Income (CMI)
• Compared to Applicable Median Income Based on Household
Why Do We Have the Means Test?
• As Defined in 11 U.S.C. 707(b)(2)
• BAPCPA of 2005
• Finding of Abuse in Individuals With Primarily Consumer Debt
- What Are Consumer Debts?
How Does the Means Test Work?
• Two-Step Analysis
- Compare Your Gross Household Income to Median Household Income
- Calculating Gross Income for the Means Test
- Relevant Time Period
- Sources of Income
• Comparison to Median Income
- Median Income Updated April 1, 2021
• Now What?
- If Income Is Less Than Median, Then You Are Below Median
- If Income Is More Than Median, Then Need to Complete the Means Test
Calculating the Means Test - Accounting for Expenses
• Applicable Deductions as Defined in 11 U.S.C. 707(b)(2)(A)
- Allowed Expenses Fall Into Four Categories
- Based on National Standards Established by IRS
- Payments to Secured and Priority Creditors
- Actual Expenses
- Administrative Expenses
• Results of Means Test Determines Chapter
Most Common Mistakes Made on Means Test
• Taking the Means Test Unnecessarily
• Using Wrong Household Size
• Income Does Not Match Documentation
• Child Support
• Actual Payment vs. Standard Deduction