What is the Bankruptcy Means Test? When Congress changed the bankruptcy law in 2005, they implemented what is called the “Means Test.” It is basically a mathematical test that starts with the debtor's average income for the six months preceding the month in which the bankruptcy case is filed, which is referred to as “current monthly income” or “CMI.” If the CMI is less than the state median income, then there is no presumption of abuse for the debtor to file a Chapter 7 case or the debtor can propose a three year repayment plan if it is a Chapter 13 case. If the CMI is greater than the median income, then the computations become significantly more complex and a combination of the debtor's actual expenses and IRS standard expenses for the debtor's family size are deducted from the CMI to determine the debtor's monthly disposable income. Examples of actual allowed expenses include expenditures for mortgage and other secured debts, medical care, insurance, and charitable contributions. Standard expenses based on IRS data include expenditures for rent, food, clothes, utilities, transportation and other basic living expenses. If the test demonstrates that there is monthly disposable income available to repay a certain amount of debt, then the debtor will not pass the means test and not qualify to file Chapter 7 bankruptcy. The test may also be used to help determine the amount of unsecured debt that should be repaid in a Chapter 13 test. Due in part to some of the anomalies that resulted from a test that used historical income that may no longer exist and deductions for expenses that may not exist, the means test is now generally considered a starting point to determine disposable income that better reflects the debtor's true ability to repay debt. The courts have injected some common sense and determined that there may be adjustments to CMI when there are “special circumstances” that render the CMI meaningless or no longer relevant. In essence, after much litigation and confusion, we have almost returned to pre-2005 bankruptcy law whereby the main focus is on whether the debtor is filing bankruptcy in good faith and has the means to repay at some of his or her debt.
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