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:
- secured debt
- “priority debt” such as taxes and unpaid child support or alimony
- unsecured debt
Expenses. The allowable deductions from Current Monthly Income start with the standards set out by the Internal Revenue Service.
- “National Standards” establish the amount for food, clothing, personal care and entertainment on a national basis. They take into account the taxpayer’s family size. Under the means test, the debtor can add up to an additional 5% for food and clothing upon demonstrated need. See National Standards for Allowable Living Expenses
- “Local Standards” apply to housing and transportation. See Local Standards for Allowable Living Expenses for Housing and Utilities and Local Standards for Allowable Living Expenses for Transportation
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.