A. The Bankruptcy Means Test
Under the old bankruptcy law, almost any citizen of the United States could file for a chapter 7 or a 13. Before the law change, any debtors whose debts were primarily consumer related were only subject to scrutiny by the trustee or the bankruptcy court. Under the old law almost all debtors were entitled to file for a chapter 7 regardless of their income level.
The new bankruptcy law now “lowers the boom†on debtors. The new bankruptcy code now includes a formula test and it is called the bankruptcy means test. This test determines what debtors are eligible to file for chapter 7. The bankruptcy means test applies to debtors whose debts are primarily consumer debts. Consumer debts include credit cards, car debt, and mortgages. Many debtors are forced into bankruptcy because of a failed business or a large business related judgment. Any debtors who have primarily business debts are exempt from the means test and they may file a chapter 7 without completing the means test. The bankruptcy means test evaluates your income. Your income is then compared it to the official median income for households in the State of New Jersey as reported by the Bureau of Census in the most recent reporting year. The median income base increases with the size of your household.
Any debtors with an income equal to or below the New Jersey State median income for families of the debtor’s size are exempt from the bankruptcy means test. For those debtors with income above the New Jersey state median income, then there is a presumption of abuse on the part of the debtor. The debtor has the burden of disproving any presumption of abuse.
The bankruptcy means test evaluates whether your current monthly income is greater or less than the applicable median income. Your monthly income includes income from all sources. The term Current Monthly Income or (CMI) has a special meaning under the new bankruptcy law. CMI is defined as the average monthly gross income received during the six full months prior to your filing for bankruptcy. In applying the bankruptcy means test, the debtor’s average income over the past six months is used, regardless of present actual income. The CMI includes gross income from all sources including income of a non-filing spouse, regular gifts or assistance from family members, and gross income from a wholly-owned business. Any social security income is excluded from the definition of CMI.
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