Tuesday, January 24, 2012

Means Testing Outline

Means Testing  (Form B22A)
A.  Business vs. Consumer Debts
1.  If primarily business debt no means testing is necessary.
2.  "Primarily" means "majority."
B.  Calculate Current Monthly Income
1.  Includes all sources of income except Social Security Benefits for the six-month period ending on the last day of the month before filing.
C.  Compare Annualized Gross and  Median Family Income
1.  Means testing information available from the U.S. Trustee's Website.
2.  If debtor's annualized gross is below median income in the state the debtor resides compared to a family of the same size, no further means testing necessary.  Chapter 7 is available.
3.  Where debtor's annualized gross is above the median the consumer debtor must complete the means test to determine whether a presumption of abuse of chapter 7 arises due to the ability to repay debt.
D.  Calculate Disposable Income
  1.  Deduct categories of allowed expenses from current monthly income.
   i.  Most allowed expenses are from the IRS, but a few come from the debtor's facts.
2.  Where 60-month disposable income is less than $7,475, no further means testing is necessary.
i. A short chapter 13 or 7 is available.
3.  Where 60-month disposable income is more than $12,475, a presumption arises that the debtor would abuse chapter 7 if granted a discharge.   A 60-month chapter  13 may be required.
4.  Where 60-month disposable income is more than $7,475, but not more than $12,475, and the available disposable income is sufficient to repay 25% of the debtor's general unsecured claims, a presumption arises that the debtor would abuse chapter 7 if granted a discharge.  A 60-month chapter 13 may be required.
E.  Rebuttal of the Presumption of Abuse
1.  The burden of proof shifts to the debtor to show granting a discharge under chapter 7 would not be abusive of the Bankruptcy Code.
2.  Atypical income events may unfairly skew means testing results.
i.  Lanning:  Current Monthly Income is usually all that is required, but courts can consider known or virtually known information regarding the debtor's income or expenses.