Chapter 7 Bankruptcy Means Test

Chapter 7 Bankruptcy Means Test

Stuart Bankruptcy Lawyer

Bankruptcy is not something to be taken lightly and you should not do it alone. It is advisable to seek the guidance of an experienced bankruptcy attorney. The Law Office of Brent M. Myer, PLLC in Stuart, FL can help if you are considering bankruptcy.

The Means Test could be an obstacle to you filing a Chapter 7 Bankruptcy. The Means Test determines whether a Chapter 7 Bankruptcy filing amounts to an abuse of the Bankruptcy process. Thus, pushing you into a Chapter 13 Bankruptcy instead.
The Means Test was added to the Bankruptcy Code by virtue amendments in 2005. Congress added the Means Test to the Bankruptcy Code in order to make it more difficult to qualify for Chapter 7. 

The Means Test is a complicated form. In fact, it may entail the filing of two forms depending on the amount of your income. An experienced bankruptcy attorney can ensure that the Means Test form(s) are properly completed. 

The following two forms make up the Means Test for a Chapter 7 case:

  • Form 122A-1: Chapter 7 Statement of Your Current Monthly Income
  • Form 122A-2: Chapter 7 Means Test Calculation

Chapter 7 Statement of Your Current Monthly Income (Form 122A-1)

Your income is disclosed in this part of the Means Test form. You must disclose your gross monthly income from all sources for the six months immediately preceding the bankruptcy filing. However, some types of income are excluded. For instance, Social Security Benefits and VA Disability benefits are not included in the calculation of current monthly income. 

The six-month income information is converted into an annual figure and compared to the median income for a similar-sized household in your state. If your annual income is less than the median income for a similar-sized household, then there is no presumption of abuse. In 2013 all but 12% of debtors who took the means test passed it in the first stage, according to statistics from the Executive Office for U.S. Trustees.

However, if your annual income is more than the median income, then you must complete the second part of the Means Test form (Form 122A-2).

Chapter 7 Means Test Calculation (Form 122A-2)

The second part of the Means Test form is where your expenses are listed. However, the expense information listed is a combination of actual expenses and expenses based upon US Census Bureau information (National and Local Standards). As such, it can be confusing when attempting to complete the form on your own. 

Marital Deduction

You may first back out expenses paid by a non-filing spouse which do you contribute to you or any of your dependents (Line 3 Form 122A-2). Allowable marital deductions include the non-filing spouse’s payroll deductions and child support payments.

Expenses based upon National and Local Standards

Next, you list a number of expenses which are based upon US Census Bureau information. So the amounts you list are not your actual expenses. The following are examples of such expense: 

  • Food and clothing expense for your household (Line 6 Form 122A-2).
  • Out-of-pocket medical expenses for your household (Line 7 Form 122A-2).
  • Housing and Utilities – Insurance and Operating Expense (Line 8 Form 122A-2).
  • Vehicle operation expense based upon the number of vehicles in the household (Line 12 Form 122A-2).

Again, the aforementioned expenses are not based upon your actual expenses but US Census Bureau information. These expense amounts can be found on the US Trustee’s website. 

There a couple of expenses which are a combination of both US Census Bureau information and your actual expenses. As such, completion of these parts of the form are a little more complicated.

  • Housing and Utilities – Mortgage and Rent expense (Line 9 Form 122A-2). You must first list the average amount of Mortgage/Rent expense for your household per the US Trustee’s website.
    • If you do not have mortgage, then the average amount of Mortgage/Rent expense is listed on Line 9c.
    • However, if you do have a mortgage payment, then you deduct that amount from the average amount of Mortgage/Rent expense. The difference is then reported on Line 9c. If the difference is 0 or negative, then 0 is listed on Line 9c.
  • Vehicle Ownership or Lease Expense (Line 13 Form 122A-2).
    • If you do not have a vehicle payment, then you cannot claim any of expense.
    • If you have a vehicle payment, then list the average Vehicle Ownership/Lease expense for your state on Line 13a. This expense information can be found on the US Trustee’s website. 

Next, list 1/60th of the debt remaining on your vehicle loan on Line 13b. The difference is then listed on Line 13c. If the difference is 0 or negative, then 0 is listed on Line 13c.

Actual Expenses

The following are examples of actual expenses which are listed on the Form 122A-2:

  • Payroll taxes (Line 16 Form 122A-2).
  • Mandatory retirement contributions (Line 17 Form 122A-2).
  • Term life insurance premiums (Line 18 Form 122A-2).
  • Court-ordered child support and/or alimony payments (Line 19 Form 122A-2).
  • Education expense that you pay (Line 20 Form 122A-2)
    • For yourself which is required by your employer.
    • For physically or mentally challenged dependent.
  • Childcare and daycare expenses (Line 21 Form 122A-2).
  • Health insurance, disability insurance, and HSA contributions (Line 25 Form 122A-2).
  • Mortgage payment (Line 33a Form 122A-2).
  • 1/60th of vehicle loan (Line 33b Form 122A-2).
  • 1/60th of priority debt (Line 35 Form 122A-2).

Your current monthly income less the sum of the allowable expenses is your disposable income. If your disposable income is low enough, then there is no presumption of abuse and you qualify for Chapter 7. You may still qualify for Chapter 7 if the Means Test generates a presumption of abuse.

Rebutting the Presumption of Abuse

Are there expenses for which you have no control over and must incur that are not listed on the Means Test? Such expenses may amount to “special circumstance” expenses which can be listed on Line 43 of the Form 122A-2. For instance, you incur a much higher transportation expense due to a longer than typical work commute. “Special circumstance” expenses may be the difference between qualifying for Chapter 7 and not qualifying. 

Also, does the Means Test fail to account for a loss of income? Did you lose employment immediately prior to filing bankruptcy? Or, did your employer cut off all over-time hours prior to you filing bankruptcy. These changes likely are not reflected in the income calculation. As such, you may be able to rebut the presumption of abuse when accounting for these changes.

Conclusion

The Means Test may or may not be a barrier to you qualifying for Chapter 7. It is advisable to seek the counsel of an experienced bankruptcy attorney when considering bankruptcy. Such an attorney can ensure that the Means Test is properly completed and that you have filed the proper bankruptcy case. Bankruptcy law can be a complicated matter, but it does not have to be with The Law Office of Brent M. Myer, PLLC.

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