Common Means Test Pitfalls

The Means Test became a part of bankruptcy along with a raft of other changes in 2005 through an amendment called BAPCPA (the “Bankruptcy Abuse Prevention and Creditor Protection Act”). Since then it has caused problems even for experienced bankruptcy practitioners. For the average person, the Means Test can look like a nightmare of accounting arithmetic. In this blog post, I’d like to take the opportunity to point out two major pitfalls that can occur to anyone trying to work their way through these forms.

What the Means Test Determines

First, it is important to know that the Means Test evaluates your income from the previous 6 months.  But, that is not 6 months from the day you file.  Instead it is measured by the 6 “full” months immediately prior to the month in which you file. So, if you were to file a case on May 1st, you would use your income from November 1st through April 30th.  If you were to file a case on May 31st, you would still use the exact same income average.  You would have to wait until June for your May income to count in your 6 months average.  You don’t count any income from the month you’re currently in.

What Income the Means Test Counts

Second, the Means Test counts virtually every form of income other than Social Security income. So even VA disability or other untaxed income is counted. This can be especially troublesome for workers who spend time over the road and earn “per diem” pay.  The Means Test must include both your base pay and your “per diem.”

Rental income is another category that is often overlooked. If you have a rental property with a mortgage payment of $450 per month, but you have a renter that makes the mortgage payment, you might be tempted to say you aren’t “making any money.”  But the Court will consider that $450 per month as income, even though you may never see a dime of it in your pocket or in your bank account.

Being Aware of These Difficulties

These two issues combined can make things especially difficult for workers with contract jobs.  For example, a union worker may only work an average of every other month, but will make very good income during that job and get paid a “per diem” while away from home. They may also work for multiple different employers during that time. When calculating a Means Test for that situation, you must take care to include all the different employers, as well as the “per diem”, and keep an eye out for the exact dates the income was earned in order to accurately calculate your 6 months average.

The standard forms for Bankruptcy were amended in December of 2016 to attempt to make them easier to understand and fill out for people without bankruptcy experience or legal training. However, even with these changes, tackling a Means Test calculation can be a daunting task.

At Bond & Botes, our experienced attorneys have years of experience working with a wide range of clients from all income levels.  If you are considering bankruptcy, please contact us at one of our convenient locations in Alabama, Mississippi, or Tennessee.  We offer free initial consultations and can help you navigate the dense bankruptcy laws and forms in order to find the relief you deserve.