In order to qualify for a Chapter 7 bankruptcy without a presumption of abuse you must generally meet certain requirements. First, if your current monthly income (CMI calculated by taking all household income for the last six months combined and divided by 6) is less than the median monthly income for your state then you can file (without a presumption of abuse) based on your income alone. If your monthly income is above this amount then in order to qualify you must perform an income and expense test called the bankruptcy means test and if you have less than a certain amount left over you can file without a presumption of abuse.
The CMI refers to all monthly income from all sources that debtor (and debtor’s spouse in most cases) receives without considering whether it is taxable income or not. It is calculated by adding up all income from the last six months prior to the filing month (the last day of the calendar month immediately preceding the date of bankruptcy filing) and dividing it by six to come up with an average monthly income. The income does include amounts paid by any entity other than the debtor on a regular basis for household expenses of the debtor or dependents of the debtor.
Again, this six month look back period starts from the preceding month. For example, if the debtor files the case on October 6, then the six month look back period will include April through September. Some of the categories of income for purposes of the means test include the following: 1) Gross wages, salary, tips, bonuses, overtime, commissions; 2) Income from the operation of a business, profession, or farm; 3) Rent and other real property income; 4) Interest, dividends, and royalties; 5) Pension and retirement income; 6) Any amounts paid by another person or entity, on a regular basis, for the household expenses of the debtor or debtor’s dependents, including child support paid for that purpose; 7) Unemployment compensation; and 8) Income from all other sources.
In most cases, the only exclusions from the CMI calculations are Social Security benefits, payments to victims of war crimes, and payments to victims of international terrorist.
In calculating your expenses in the means test, certain expenses are specified by IRS tables, such as Transportation (ownership and operating expenses), housing expenses, and living expenses. There are other expenses that you can deduct based on how much you actually spend each month. Some of these allowable expenses are child care, tax withholdings, certain medical and dental insurance expenses, life insurance premiums, certain educational expenses for your children, alimony, child support, care of elderly or disabled dependents, health savings accounts, internet and other telecommunications services, actual expenses for food and clothing up to 5% above the IRS allowance, and certain private education expenses for children.
You can also deduct secured debt monthly payments such as your car and house payments during the next five years after the bankruptcy filing. Many times, having very high secured debt payments can help when attempting to pass the means test in order to qualify to file a Chapter 7 bankruptcy. For more information, or to have our bankruptcy lawyers in Birmingham, Montgomery, Anniston, or Huntsville perform the means test for you to see if you qualify to file a Chapter 7 bankruptcy, give us a call today for a consultation.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, and real estate closings on this website. He is always available in any of the firm’s offices or by phone anytime for a consultation. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply any feedback. We appreciate our readers and love to hear from you!