December, 2013
Kansas Bankruptcy News
A monthly publication for the non-bankruptcy attorney prepared by the Law Office of
Donald C. Astle, Donald C. Astle and Sheila Maksimowicz Attorneys at Law.
345 Riverview Suite 730,Wichita, KS
The "Means Test" What is it?  How does it work?

     An often used term in consumer bankruptcy is the “means test.” Do the debtors pass or fail the means test? It’s important. It may determine if the debtors must file a Chapter 13 bankruptcy, which is a long and expensive bankruptcy, rather than a much simpler Chapter 7 bankruptcy. As you probably know in Chapter 13 the debtors make payments generally over a 36-60 month plan. In Chapter 7 no such payments are made and a discharge is typically granted four to six months after the filing of the bankruptcy. Also, the cost of a Chapter 7 is about a third of the cost of a Chapter 13.
     To first understand if the means test applies the debtors need to compare their family income in relation to median family income. Below is a current median family income chart. It is adjusted twice a year based on statistical data. If the debtors’ income is over the median family income, then the means test has to be performed. The means test is a standard court approved calculation where standardized expenses for housing, utilities, food, transportation, etc. are used in a formula. Some expenses are fixed, like transportation and utilities. Some expenses, like ongoing medical expenses, can be adjusted if warranted. Others, like court ordered support and maintenance, mandatory retirement programs (KPERS), non-dischargeable tax obligations, are dependant on court order or other factors.
     If the debtors are over median family income and flunk the means test it is very likely that the bankruptcy will be dismissed if not converted to Chapter 13. There are exceptions. For example, where it can be clearly shown that income will be reduced in the future, because of retirement or imminent job termination, or that expenses will change, like a significant increase in medical costs or support obligation, then flunking the means would not be fatal to a Chapter 7 bankruptcy.

The client wants to file bankruptcy right away but doesn’t have any money. The clients know that they are going to get a sizeable tax refund can assign, or reserve the attorney fees from their tax refund. File later!

Dismissal of a case of conversion to a case under chapter 11 or 13:
(b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter.
(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of-- (The statute then describes the process called the “means test.”)
JP...The Legal Cartoon

Copyright David Carter used with permission.
So, bottom line, even if the debtors are over the median family income, they still may qualify for Chapter 7 bankruptcy rather than the more expensive and Complex Chapter 13 bankruptcy.
Serving Kansas since 1984, The Law Offices of Donald C. Astle practices exclusively in consumer bankrupcy and collection law. No other cases are accepted.

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Sheila C. Maksimowicz
University of Kansas, 1980
Donald C. Astle
Washburn University, 1984