The Means Test

The Means Test has become infamous among both bankruptcy attorneys and debtors.  In 2005 BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) was passed by Congress.  This act was designed to make it more difficult for certain debtors to file chapter 7 bankruptcy.  However, despite this attempt due to economic conditions and the actual application of the Means Test under Section 707(b) chapter 7 bankruptcy remains a viable option to many potential debtors.  

First, the Means Test applies only to those debtors whose debts are primarily consumer debts as opposed to business debts.  Second, many potential debtors still qualify under the Safe Harbor provisions of the Means Test under Section 707(b)(7).  If the debtor's gross household income falls below that of the median income for the household size set for by the Census Bureau on the date of filing the Safe Harbor applied and the U.S. Trustee and panel Trustee are prevented from requiring debtors to complete the full Means Test (Official Form 22A) which is a complicated and detailed analysis.  As of September 6, 2010 the following figures reflected the median incomes permitted in Florida.

FAMILY SIZE
STATE	1 EARNER	2 PEOPLE	3 PEOPLE	4 PEOPLE

  FLORIDA                $41,079.00                   $52,073.00                $58,366.00                $68,763.00

**For cases filed on or after April 1, 2010, add $7,500 for each individual in excess of 4.

Please be consult a bankruptcy attorney regarding the amounts permitted under the Means Test and qualifications to file Chapter 7 bankruptcy. 

In order to calculate the household income the debtor or the bankruptcy attorney must calculate the debtors "Current Monthly Income" as defined by Section 101(10A) of the bankruptcy code.  In essence, the "Current Monthly Income" is calculated by obtaining proof of all pretax (gross) income for the household for each of the past 6 months ending on the last day of the month for the month preceding the bankruptcy filing and obtaining a monthly average.  It is essential to consult with a bankruptcy attorney regarding the Means Test and determining which sources of income are considered.  Generally, all wages, earnings, commissions, salaries and other typical sources of income must be included.  There are certain sources of income such as Social Security payments that are not included in this calculation.  All applicable sources of income for the household generally must be included and this also includes the income of a non-filing spouse.  Once you obtain the average monthly income as stated above this figure must be compared to the current Census Bureau median income figures for the applicable state for the specific household size.  An example for Florida is stated above.  However, these figures are being revised on a regular basis and it is advisable to seek legal guidance from a bankruptcy attorney on this issue.  The Census Bureau publishes the Means Test figures as they are updated.

If the average monthly income falls at or below the average monthly income in the state for a household of the same size the Safe Harbor applies and the debtor passes the Means Test and is not required to complete all of Official Form 22A.  However, if the income exceeds these figures the full Means Test must be completed.  The Means Test can be complicated and the proper application of allowed expenses set forth by National and Local Standards must be used as well actual expense figures for the household in certain expense categories.  Allowed expenses are set forth in Section 707(b)(2)(A) of the Bankruptcy Code and governing case law may interpret or alter the application of this provision.  

If the debtor does not meet the Safe Harbor provisions but does pass the Means Test once the proper expenses are deducted then the presumption of abuse does not apply.  This can be a difficult set of calculations for an inexperienced filer and a debtor should seek legal guidance in this instance in many cases.  This area is one in which an experienced bankruptcy attorney can provide valuable guidance and prevent the dismissal or objection to the bankruptcy case.  

Lastly, if the debtor does not fall in the Safe Harbor or pass the full Means Test after completion of Official Form 22A the debtor has the ability and burden to demonstrate "Special Circumstances" (Section 707(b)(2)(B)(i)).  The debtor may successfully argue that there are circumstances if verified that would allow the debtor to satisfy the Means Test.  This is complicated in many cases and is often controlled by case law interpreting "Special Circumstances".  

Passing the Means Test is one significant hurdle but does not guarantee a successful chapter 7 case.  The Trustee among other can object to the case as an "abuse".  What constitutes an abuse or a filing in bad faith is beyond the scope of this discussion.