Means Test, Part
2: When the Debtor Exceeds the State's Median Income
If the debtor's
Current
Monthly Income exceeds the applicable state’s
median
income, the debtor can still be presumed to be eligible. The next step
is to calculate expenses. Information needed to compute the means test
consists of the amounts of:
Expenses. The
allowable deductions from Current Monthly Income start with the standards
set out by the Internal Revenue Service.
Secured
Debt.
The means test
requires the payment of secured debt. To avoid a duplication of mortgage
expenses and car payments, the "Statement of Currently Monthly Income and
Means Test Calculation Draft Interim Form" provides for reducing the
amount of these standards by the amount of secured payments for mortgage
and car payments.
Other Necessary Expenses.
The means test permits "reasonably necessary health insurance, disability
insurance, and health savings account expenses," which include:
-
expenses to protect
from family violence
-
expenses to care for
nondependent family members, including parents, grandparents, siblings,
children and grandchildren
-
the actual expenses
of the administration of a Chapter 13 Plan
-
up to $1,500 per
child for the actual expenses of private or public elementary or
secondary school (the debtor is obliged to document the reasonableness
and necessity of the expense)
-
the current secured
obligations of the debtor, pro rated over five years and deducted
(additionally, arrears are deducted on secured property that are
necessary for the support of the debtor and the debtor’s family;
debtor’s residence and motor vehicle are particularly noted)
-
"all amounts
scheduled as contractually due to secured creditors" without any
reference to debtor’s necessary expenses; thus, current payments for
boats, RVs, vacation homes, etc., are deductible and pro rated over five
years in the means test (however, their continued payment would form the
basis of a "substantial abuse" objection
-
priority debts are
deducted as if they are being paid over five years; child support and
spousal support are particularly noted and include the priority debt
Continued charitable
contributions are excluded.
How a Presumption of
Abuse Is Handled by the Court
After all the income
and expense information is identified and compiled in
Court Approved Form 22A, then it possible to determine if the
presumption of abuse arises.
There is a presumption
of abuse if the debtor has discretionary income of more than $167 a month
and annual earnings of more than $40,000. For there to be a presumption of
abuse for a debtor making less than $40,000 per year, the discretionary
income ranges from $100-$166.66 to determine if there is a presumption of
abuse. These latter ranges are also dependent upon the amount of debtor’s
debt.
If a Chapter 7 case is
filed, the Clerk is required to notify the creditors within ten days of
the filing of the petition.
The U.S. Trustee is, separately, obliged to review the debtor’s schedules
within ten days of the meeting of creditors and file a determination of
whether there is a presumption of abuse or not.
If the presumption
arises, the U.S. Trustee is required to notify the creditors. If, after
either of these determinations of the presumption, the U.S. Trustee does
not file a Motion to Dismiss or Convert under § 707(b), then the U.S.
Trustee must file a statement explaining as to why no motion was filed.
The U.S. Trustee, the
court or the trustee has standing to file the Motion to Dismiss or to
Convert. A creditor may also file the Motion if the debtor’s
Current
Monthly Income is above the state’s
median
income. In response, the debtor must swear that there exist special
circumstances that justify the court finding that the presumption does not
arise. Then the court will hold a hearing on the motion. |
