To determine whether a debtor can afford to repay a portion of his debts, a complex mathematical equation must be performed.
You must first determine the current monthly income (CMI) of the debtor. If the debtor's CMI is less than the state median income, the debtor is eligible to file under Chapter 7 and no additional calculations are necessary. Current Monthly Income is not based on either the current or previous month's earnings. Despite the apparent contradiction, please continue reading. The actual (CMI) is the average monthly income received by the debtor and the debtor's spouse during the six months preceding the petition date. This effectively precludes a debtor who has been unemployed for one month from claiming inability to pay. In all likelihood, he has a high (CMI) if his income over the previous five months was substantial. Consequently, it is evident that Congress has closed the vulnerability. Under the previous law, an unemployed debtor would only be examined as of the date of filing. Under the new law, a more comprehensive assessment is conducted to determine whether the debtor has the means to repay his debts.
If the debtor's CMI is greater than the state median income, the means test formula must be used to determine whether the debtor is eligible to file Chapter 7 bankruptcy.
If the debtor's CMI, less allowable deductions, is less than $100 per month, the debtor is eligible to file for Chapter 7 bankruptcy. If the debtor's CMI, less allowable deductions, exceeds $166, the debtor must file for Chapter 13 bankruptcy.
If the debtor's CMI, less allowable deductions, is between $100.00 and $166.00, he may be required to file under Chapter 13 depending on the amount of unsecured debt and the percentage that could be repaid using the debtor's disposable income over the course of five years. If the debtor's disposable income is insufficient to pay 25% of unsecured creditors over a five-year period, Chapter 7 can be filed. Consequently, the amount of debt is a factor in determining whether a debtor must apply for Chapter 13 bankruptcy. The larger the debt, the greater the likelihood that the debtor can file Chapter 7 bankruptcy. Clearly, the mathematical calculations are quite intricate.
In addition, the debtor's expenses cannot be factored into the calculation of disposable income. The discretionary income of a debtor is now determined by IRS expense standards applicable to the area in which the debtor resides.
If the debtor has a monthly disposable income of $167, he will always fail the means test, regardless of the amount of unsecured debt he has. In addition, the Chapter 13 plan duration must be five years, not three.
Abuse of benefits or failing the means test can always be refuted. In order to qualify for Chapter 7, the debtor will need to provide evidence of exceptional circumstances that reduce income or increase expenses. For instance, the debtor may incur constant medical expenses that exceed the IRS's guidelines. Under the new means test, this debtor may be able to rebut the presumption of abuse. Please consult with an experienced bankruptcy attorney to determine whether you are likely to be eligible for Chapter 7 bankruptcy relief.
How frequently can a person file for Chapter 7 bankruptcy?
A debtor can only receive a discharge once every eight years under the current law. This is an expansion of the previous law, which allowed a discharge every six years.""
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