Law Office of Rick Morin, PC

Eligibility for Chapter 7 Bankruptcy in Sacramento is governed by two main tests. The Means Test and the Totality of the Circumstances Test. The Chapter 7 Means Test is often understood. But it is a critical component to every Chapter 7 Bankruptcy case.

The Chapter 7 Means Test was imposed by Congress in it’s 2005 revision to consumer bankruptcy laws. The means test is theoretically used to ensure that only debtors truly in need of bankruptcy assistance are eligible to file.

Potential clients often have already attempted to determine their means test results by using an online calculator. Many times, their results are incorrect.

The main piece of information driving means test calculations is the debtor’s “currently monthly income.”

Current monthly income is a term used in the bankruptcy code and is often abbreviated “CMI.” Current monthly income is determined by averaging the debtor’s income over the prior full six months.

For an example, assume that a person will be filing bankruptcy in December 2013. The calculation of current monthly income will be determined by averaging the person’s income over six months. In this case, it would be June through November. Why not include December? Because the definition of “current monthly income” in 11 U.S.C. 101(10A) states that the six months ends on “the last day of the calendar month immediately preceding the date of the commencement of the case…”

As you can see, careful timing of a bankruptcy case can impact a debtor’s eligibility for Chapter 7 Bankruptcy relief. This is especially true for debtor’s with incomes that fluctuate from month to month.

Knowing that the Court will look back six months, a debtor with a large bonus in December or January may wish to wait until such time that the bonus will not factor into the Chapter 7 Means Test.

There is nothing wrong with carefully timing a bankruptcy filing. If you have any questions about your eligibility for Chapter 7 Bankruptcy, please contact Rick Morin at (916) 333-2222 for a free bankruptcy consultation.