Bankruptcy Means (Income) Test--Chapter 7 vs. Chapter 13

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a means (income) test, which will be applied to Chapter 7 bankruptcy petitions, filed on or after October 17, 2005 if the debtor is an individual with primarily consumer debts. The test will determine if the debtor is eligible for Chapter 7 or must file under Chapter 13 for relief. Here's how the test works:

1. Your current monthly income (CMI) equals the average monthly gross income that you (in a joint filing, you and your spouse) received from all sources. This includes any amounts paid by any other entity on a regular basis for the household expenses of you, your spouse (in joint filings), and/or your dependents, over a six-month period immediately preceding the bankruptcy filing. Social Security benefits, and payments to victims of war crimes, crimes against humanity, and terrorism may be excluded.

2. As published by the U. S. Bureau of Statistics, adjusted for family size.

3. Generally, allowable expenses include living expenses, determined under:

the IRS National Standards for Allowable Living Expenses, based on family size and gross monthly income--an additional 5 percent of the National Standards food and clothing categories is allowed if you can demonstrate that this additional amount is reasonable and necessary.

The IRS Local Standards Housing and Utilities Allowable Living Expenses for your state and county--you may be granted an additional expense allowance for actual home energy expenses if you can document the expenses and demonstrate that they are reasonable and necessary.

The IRS Allowable Living Expenses for Transportation for your area

The actual amounts of other necessary expenses, including:

• Charitable contributions not to exceed 15 percent of your gross income

• Child care

• Care for elderly, invalid, or handicapped members of your immediate family who cannot pay for these expenses themselves

• Elementary or secondary school expenses for each dependent child under 18 years old, to a maximum of $1,500 per child per year

• Health insurance, disability insurance, and health savings account expenses

• Federal, state, and local tax payments, including FICA and Medicare Secured debt payments (e.g., home mortgage, car payment)

• Administrative expenses if you're eligible to file Chapter 13

• Reasonably necessary expenses to keep you and your dependents safe from family violence

THIS IS COMPLICATED. BRING YOUR DATA TO US AND WE'LL HELP YOU DO THE MATH!