February 26, 2020

Means Test Musings

Over the past few weeks, I have received objections in two Chapter 7 cases from the U.S. Trustee having to do with the median income/means test Form 22A.

Under the new law, debtors must fit within these tests in order to qualify for Chapter 7. The first part of the test is called the “median income” test. Under this (simple) test, if your household income is below the average income for a similarly sized family in your State, then you qualify for Chapter 7. The average income figures are built into my bankruptcy preparation program, but if you want to see these figures, you can look at them on the U.S. Trustee’s web site.

If your income exceeds the average, you can still qualify for Chapter 7 if you pass the “means test.” This is where we compare your monthly income (generated from an averaging of your gross income over the past 6 months) to a pro-forma budget using IRS derived budget numbers.

If your real life expense numbers are higher than the means test numbers, you are most likely out of luck. The means test does contain a small window where a Bankruptcy Judge can find that a particular expense is “reasonable.” The problem, of course, is that the U.S. Trustee is taking a very conservative approach and most debtors do not have the money to pay for research and litigation.

Two issues have come up recently – be aware of these if you are a lawyer or a debtor planning to file:

1. Reasonableness of supporting a college aged child – the U.S. Trustee will object if you include food, housing and transportation expenses for a college aged child. According to the trustee, these expenses are not necessary.

2. Vehicle leases – the U.S. Trustee contends that leased vehicles are not secured debts therefore the lease cost may not be an allowable expense in the pro forma budget. It seems to me that both leases and purchases are “ownership costs” such that it would be absurd to disallow lease payments, but it appears that is exactly what the trustee is doing.

I have a meeting scheduled for later this week to discuss these issues with an attorney in the trustee’s office – perhaps I will get some clarification.

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