The current bankruptcy forms include a portion that determines the debtor’s Current Monthly Income (CMI), also referred to as the Means Test. After the form is completed, the resulting number gives an indication for which bankruptcy chapter, if any, the debtor is more likely to qualify. Since there are many variations on how people receive income, and the types of income they receive, the Means Test is open to interpretation in some areas, and not all courts or judges agree on some of the more complex “income” issues.
In a simple Chapter 7 case, which is generally the more popular Chapter because it is quicker and allows the debtor to remove most or all unsecured debt (credit cards, medical bills, etc.), the debtor must show that their monthly income after basic expenses are considered amounts to a negative number, or a very small positive number. In a Chapter 13 case, where debtors pay back a portion of their debt, the income generally needs to exceed the expenses by enough to fund a Chapter 13 plan.
One complication with the Means Test is that the form uses income received in the six month period “prior” to the month in which the case is filed. This look-back approach to determining current monthly income does not effectively consider changes in income due to a lost job, or less overtime. It can also be misleading if a large bonus was received in the six-month period, which would artificially inflate the income, especially if future bonuses are not guaranteed.
Another complication is that expenses may increase in the future if the debtor needs to buy a car, or if a child will be attending college. Future, anticipated expenses are not factored in to the Means Test calculation.
Judges and Trustees can make exceptions to a Means Test result that suggests that a debtor does not qualify for the Chapter they are filing for. However, in many cases, it is often best to simply choose a filing date that maximizes the chance of filing for the Chapter you need.
It is important to discuss your income situation with an attorney prior to filing a case to make sure that you qualify for the Chapter that you want.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.