BANKRUPTCY LAW HANDBOOK
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REQUIREMENTS UNDER NEW LAWS
INDIVIDUALS WITH ENOUGH
INCOME TO FILE CHAPTER 13 MAY BE INELIGIBLE TO FILE CHAPTER 7.
Certain individuals may no
longer be eligible to file Chapter 7 under the new Bankruptcy Code if they earn
sufficient income to make payments to Creditors under a Chapter 13 Plan.
The purpose of the Means Test is to evaluate whether you have enough disposable
income, after subtracting certain allowed expenses and required debt payments,
to make payments to Creditors under a Chapter 13 Plan.
"CURRENT MONTHLY INCOME".
step in determining your eligibility to file Chapter 7 is to figure out your
"Current Monthly Income". Current Monthly Income is defined as the
Debtors' average monthly income from all sources during the 6-MONTH
PERIOD prior to the date of commencement of the case. Current Monthly
Income includes income paid by an entity on a regular basis for household
expenses. Current Monthly Income excludes all social security benefits and
compensation paid to victims of war crimes and domestic or international
Spouse's income in non-joint cases.
The income which will be compared to the median income in the state will include
income of a non-filing spouse, unless the spouses are legally separated or
living separately and the debtor files a statement under penalty of perjury.
[Section 707(b)(7)] A non-filing spouse's income is not specifically
included in the Means Test itself. [Section 707(b)(2)(A)(i)]
Monthly Income and self-employed individuals.
Presumably, "income from all sources" includes business or self-employment
income. In calculating business or self-employment income, expenses
incurred to produce the income are generally deducted. However, expenses
which the new Bankruptcy Code allows to be deducted for the Means Test has no
specific provision for self employment. Section 707(b)(2)(B)(i) allows
adjustments for "such special circumstances that justify additional expenses or
adjustments of current monthly income for which there is no reasonable
Alternative calculation of 6-month period.
If the Debtor did not file the schedule of current income required by Section
521(a)(1)(B)(ii), (which it almost always is), income is to be calculated from
the 6 month period ending on the date on which current income is determined by
Section 101(10)(A) and (B).
Monthly Income is defined in the new Bankruptcy Code at Section 101(10)(A) and
CURRENT MONTHLY INCOME WITH THE MEDIAN INCOME IN YOUR STATE.
Once you've calculated your Current Monthly Income, multiply it by 12 and
compare it to the median income for your state. You can find median income
tables, by state and family size, at the website of the United States Trustee at
www.usdoj.gov/ust. Select "Means
Testing Information" on this site.
Means Test may not be necessary.
If your Current
Monthly Income is less than or equal to the median, you need not proceed further
with the Means Test.
You are eligible to file
If your Current Monthly Income is greater than the median, however, you must
pass the Means Test in order to file Chapter 7.
MEANS TEST - SUBTRACT CERTAIN EXPENSES FROM CURRENT MONTHLY INCOME.
To ascertain whether
you will pass the Means Test and qualify to file Chapter 7, subtract the
following expenses from your Current Monthly Income:
debt (such as car loans), due over five years, divided by 60;
or vehicle arrearages to be cured in a Chapter 13 plan, divided by 60;
debts (such as taxes, child support, alimony), divided by 60;
expenses permitted by the IRS in its financial analysis standards;
actual expenses as permitted by the IRS;
insurance, disability insurance, and health savings account;
contributions up to 15% of the debtor's income;
allowance for food and clothing (requires Court approval);
monthly costs of caring for an elderly, ill or disabled family member, even if
not a dependent;
10. Chapter 13
administrative expenses not to exceed 10%;
11. Up to $1,500 annually
($125 per month) per child under 18 for public or private school expenses;
costs for utility expenses.
SCORING THE MEANS TEST.
If your total
income, after subtracting the above items, is less than $100, you pass the Means
Test, and you will be allowed to file for Chapter 7. If your total
remaining monthly disposable income is more than $167, you have flunked the
Means Test and you will be prohibited from filing Chapter 7 but not Chapter 13.
If your remaining monthly disposable income is between $100 and $167 and is
sufficient to pay more than 25% of your unsecured, nonpriority debts (credit
card bills, student loans, medical bills, etc.) over a five-year period, you
flunk the Means Test. If not, you pass the Means Test and Chapter 7 is an
Debtors filing bankruptcy under the new laws much file the following documents
at the time they initiate their bankruptcy case:
of an attorney or petition preparer showing that the debtor was given an
informational notice as required by amended
Section 342(b)of the Code.
b. Proof of
Copies of all payment advices or other evidence of payment (such as pay stubs)
received by the debtor from any employer of the debtor if received within 60
days before the filing of the petition;
Monthly Net Income.
A statement of the
amount of monthly net income, itemized to show how the amount is calculated; and
Anticipated Changes in
statement disclosing any reasonably anticipated increase (not decrease) in
income or expenditures over the 12-month period following the date of the filing
of the petition.
with the court a record of interest in an educational individual retirement
TAX RETURNS OR TRANSCRIPTS.
Debtors must provide copy of most recent tax return.
requires that each debtor, at least seven days prior to the 341 meeting, provide
to the trustee and any creditor making a timely request, a copy of the debtor's
federal income tax return or a transcript of the return for the period for which
the return was most recently due and for which the debtor filed a return.
The failure of the
debtor to produce the return or transcript requires dismissal of the case unless
the debtor can demonstrate that the failure was "beyond the debtor's control".
Debtors may be requested
to provide copies of tax returns becoming due while case is pending, or due
within three years before case was filed.
521(f)(1)-(3) require individual debtors to file, at the request of the Court,
the US Trustee or a party in interest, a copy of any federal income tax return
(or transcript of the return), at the same time the return is filed with the IRS
for any tax year ending while the case is pending and for any tax year ending
during the three years before the case was filed. The requirement includes
copies or transcripts of any amendments to such returns.
More tax returns
required under Section 1308 (in Chapter 13).
All tax returns for the four years prior to filing the petition must be filed
with the taxing authorities if there is a filing requirement. If not filed
by the 341 Meeting, the 341 Meeting may be held open by the Trustee for up to
120 days. The Court can provide a 30 day extension beyond the date set by
the trustee upon a showing the failure to file was beyond the debtor's control,
and after notice and a hearing.
COUNSELING AND DEBTOR EDUCATION
individual cannot file Chapter 7, 11 or 13 unless he or she has received
individual or group credit counseling (including telephone or internet) during
the 180-day period preceding the date of filing bankruptcy. [Section
109(h)] Individuals must receive such counseling from certain approved,
non-profit budget and credit counseling agencies. The clerk of the
Bankruptcy Court maintains a
list of approved
credit counseling agencies which are authorized to offer the required
pre-bankruptcy credit counseling in the State of Utah. At the present
time, none of the approved agencies have offices within the State of Utah, and
their services are available only by telephone or internet. The fee
presently being charged for this credit counseling is between $30 and $50 which
individuals must pay.
The credit counseling agencies are required to perform two tasks:
a. They must
outline the opportunities for available credit counseling; and
b. They must assist
the debtor in performing a budget analysis.
Note that there is no
requirement that individuals attempt a debt repayment plan outside of
bankruptcy; but only that the agency outline opportunities for such and perform
a budget analysis.
Prior to filing their bankruptcy case, individuals must file with the court a
certificate from the credit counseling agency that describes the services
provided and a copy of a debt repayment plan, if one was created.
FINANCIAL MANAGEMENT COURSE IS ALSO MANDATORY.
In addition to credit counseling, all debtors must complete a financial
management instructional course within 180 days AFTER they initiate their
bankruptcy case. Unless debtors participate in such a course, their debts
will not be discharged (eliminated) in bankruptcy. The clerk also has a
list of approved financial management instructional courses.
NO INFORMATION CONTAINED HEREIN IS INTENDED TO CONSTITUTE LEGAL
ADVICE, AND IS NOT APPLICABLE TO ANY SPECIFIC SET OF FACTS, ESPECIALLY AS TO ANY
INDIVIDUAL'S PERSONAL SITUATION. THE INFORMATION CONTAINED HEREIN NOR THE
PERUSAL OF IT DOES NOT ESTABLISH NOR CONSTITUTE AN ATTORNEY-CLIENT RELATIONSHIP
WITH UTAH BANKRUPTCY PROFESSIONALS OR ANY OF ITS ATTORNEYS.
INFORMATION SET FORTH ABOVE IS BASED ON NEW BANKRUPTCY LAWS WHICH BECAME
EFFECTIVE OCTOBER 17, 2005 KNOWN AS
THE BANKRUPTCY ABUSE
PREVENTION AND CONSUMER PROTECTION ACT OF 2005
BECAUSE OF THE COMPLEXITY OF THE NEW LAWS, PLEASE REFER TO THE ACTUAL BANKRUPTCY
CODE AND RULES AND/OR CONSULT WITH A BANKRUPTCY PROFESSIONAL TO EVALUATE THE
APPLICATION OF THE ABOVE INFORMATION TO YOUR SPECIFIC SITUATION.
(UPDATED NOVEMBER 17,