Chapter 7 Means Test
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In order to qualify for a Chapter 7 bankruptcy, a Chapter 7 Statement of Currently Monthly Income and Means Test Calculation must be completed and submitted to the Court. Mark Wortman, a Kansas City chapter 7 bankruptcy attorney will help you with your debt issues. This is essentially a three step mathematical calculation that is designed to ensure that Chapter 7 debtors are not “abusing” the chapter 7 system. If a Chapter 7 debtor qualifies at any step in the three step calculation, then any further calculations are not required. Disabled veterans and debtors whose debts are not primarily consumer debts (such as business debts) are exempt from the means test, and reservists and national guard members can receive a temporary exclusion from the means test if called to active duty or homeland defense activity for at least 90 days.
Qualification for chapter 7 is not as difficult as it sounds, and the formula works as follows:
Step 1 – Median Income Test
The first step in the Chapter 7 means test is a simple comparison of the current monthly income of the debtor(s) to the “state median income.” The median income is a figure set by the U.S. Census Bureau (available at www.usdoj.gov/ust) and is based on the state of residence and the number of dependents in the debtor’s family. This is compared with the “currently monthly income”, or CMI of the debtors. If the CMI is less than the median income, then the presumption of abuse does not arise and the debtor’s will qualify for Chapter 7 bankruptcy without further means testing.
It is important to note that “Current monthly income” (CMI) does not equal actual income. CMI is based on the average monthly income received from all sources during the six months prior to filing the bankruptcy case, ending on the last day of the month before the filing.
CMI consists of the following:
Step 2 - Means Test Calculation
If the debtor’s Current Monthly Income is greater than the state median income, then step 2 of the test must be applied. The debtor’s CMI figure is reduced by various deductions, some of which are set national or local standard figures and some are debtor’s actual expenses. CMI is reduced by the following deductions:
Deductions under Standards of the IRS
Additional allowed expense deductions
Debt Payment Deductions
The current monthly income (CMI), reduced by the above deductions equals the debtor’s Disposable Monthly Income, or DMI. If the DMI, multiplied by 60, is less than $7,025 (as of 2010 – adjusted periodically), then the debtor passes the means test, and step 3 is not required. If the DMI, multiplied by 60, is greater than $10,950 (as of 2010 – adjusted periodically), then the debtor fails the means test and can only file a chapter 7 in special circumstances. If the DMI, multiplied by 60 is between $7,025 and $11,725 (as of 2010 – adjusted periodically), then the debtor must proceed to step 3 of the test.
Step 3 – Multiply non-priority, unsecured debt by 25%
If the debtor’s disposable monthly income, DMI, multiplied by 60, is less than 25% of the debtors unsecured, non-priority debts, then the debtor passes the means test. If the debtor’s DMI, multiplied by 60, is greater than 25% of the debtors unsecured, non-priority debts, then the debtor fails the means test and can only file chapter 7 only with a showing of special circumstances. Contact us to talk to a Kansas City bankruptcy attorney today.
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