The Bankruptcy Code was amended in 2005 to force more people to file chapter 13 cases. In chapter 13, people pay their disposable income for up to 5 years to a trustee who then pays the money, less his commission, to creditors. The 2005 Bankruptcy Code amendments, called BAPCPA, devised a means test to figure out if a debtor with more than median income – in other words making more than 50% of the people in the state – “overcomes the presumption of abuse” which arises when he files a chapter 7 case instead of a chapter 13 case.
How does Congress want you to figure out if you make more than the median income?
Congress wants to know your “current monthly income”.
Oddly enough, “current monthly income” is neither “current” nor “monthly”. What we do is take the average of your gross income from all sources – another point of controversy – for the last six months. We then divide this by 6 to get a “current monthly income” and then multiply this by 12 to find out what your income for a year would be at the rate of the average gross income you received during the past 6 months. Then we compare this to the median income for your state and for a family your size to see if you are above or below the median income.
That’s why your bankruptcy attorney will ask for your pay-stubs for the past six months. It’s a pain in the neck. We don’t like it either. It takes time and costs you money. But it’s the law. We always tell our clients that if you don’t like the law, write your Congressman. He or she gave you this law in the first place.
Oddly enough, once we figure out the current monthly income, that’s not necessarily what you’d pay to the chapter 13 trustee during the course of a chapter 13 plan. That’s because in chapter 13, you pay “projected monthly income” which is not necessarily the same as “current monthly income”. But what the heck is “projected monthly income”? We don’t really know because that term is not defined in the Bankruptcy Code and it will take a Supreme Court decision to finally figure out what it means. More about that another time.
Lakelaw helps people figure out whether they can file a chapter 7 case or whether they must file a chapter 13 case in Illinois and Wisconsin. For more information about means testing in bankruptcy, click here.
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