The Means Test—The Income Side

• Determine the debtor's "current monthly income" (CMI).
• CMI is the debtor's actual income over the previous six months divided by six.
• The Senate bill uses the six complete months prior to filing.
• The House bill uses the six months prior to the determination date, which is undefined.

The Means Test—The Expense Side

• Abuse will be presumed if:
  • A debtor's CMI is greater than the median income.
• The CMI for a debtor is:
  • Less contract payments on secured debts divided by 60;
  • Less priority debts divided by 60;
  • Less monthly IRS living expense allowances;
  • Less "other" expenses (child care, insurance, support);
  • Less reasonable administrative expenses;
  • Less 15% for charitable contributions;
  • Less costs of supporting a disabled family member or protecting the family from domestic violence;
  • Multiplied by 60 exceeds $6,000, or 25% of unsecured debt.
• The U.S. Trustee (UST and BA) is to file a report within 10 days of the meeting of creditors and court to serve a report on all creditors.
• The clerk is to provide notice of presumption of abuse within 10 days of filing.

The Means Test—Litigation Issues

• "Current Monthly Income" may not reflect the debtor's income.
• National, regional and local expenses—are they a safe harbor?
• "Other monthly expenses" as used by the IRS are the debtor's actual expenses.
• Additional food allowance of 5% is permitted above the IRS standards. The debtor is permitted to prove that housing expenses are higher than IRS standards.
• The expenses of a non-dependent relative may also be deducted.
• Chapter 13 administrative expenses are permitted as a deduction.
• $1,500 per year educational expense per child is permitted, in addition to educational expenses for a handicapped dependent, which is classified as an "Other Expense."

The Means Test—Procedure

• The IRS standards only create a presumption that may be rebutted by "demonstrating special circumstances"
• Special circumstances must be documented.
• Creditors, trustees and U.S. Trustees (BAs) may invoke the presumption under §707 if the debtors' income exceeds the median income as determined by the Census.
• Only U.S. Trustees (BAs) or the judge can bring a §707(b) action if the debtors' income is less than the median income, even though the presumption is not implicated.
• A case will be dismissed if sought by a victim of crime and the court finds it in the best interest of the victim.

Footnotes

¹ The author wishes to thank Hank Hildebrand, Chair of the Legislative and Legal Affairs Committee - National Association of Chapter 13 Trustees, for his excellent work in the area. In particular, Mr. Hildebrand's outline, "The Challenges of Consumer Bankruptcy Reform," is an excellent source on this and related topics and is on file with the author. Return to article