CBS CBS Consumer Bankruptcy & Debtor Education 2 — Questions and Answers
Question 1: What is the 'means test' introduced by BAPCPA for consumer Chapter 7 cases?
- A statutory calculation using income and allowed-expense data to determine whether a debtor qualifies for Chapter 7 relief (Correct answer)
- A psychological assessment of the debtor's financial decision-making abilities
- A court-administered review of whether the debtor attempted debt repayment before filing
- A creditor-requested audit of the debtor's financial records and asset values
Correct answer: A statutory calculation using income and allowed-expense data to determine whether a debtor qualifies for Chapter 7 relief
The means test under 11 U.S.C. § 707(b)(2) compares the debtor's current monthly income to the state median and, if above it, applies IRS-standard expense deductions to determine disposable income available for creditor repayment.
Question 2: If a consumer debtor's current monthly income exceeds the applicable state median income, what is the next step in the means test?
- The debtor must complete the full means test calculation using allowed expense deductions to determine monthly disposable income (Correct answer)
- The debtor is automatically disqualified from Chapter 7 and must file Chapter 13
- The debtor must obtain a bankruptcy judge's special approval before filing Chapter 7
- The debtor must wait 180 days and retest with the next 6 months of income data
Correct answer: The debtor must complete the full means test calculation using allowed expense deductions to determine monthly disposable income
Exceeding the median income triggers Part 2 of the means test, where the debtor subtracts IRS-standard and actual allowed expenses; only if disposable income still exceeds thresholds does a presumption of abuse arise.
Question 3: How is 'current monthly income' (CMI) defined for purposes of the Chapter 7 means test?
- The average monthly income from all sources received during the 6-month period ending on the last day of the calendar month before filing (Correct answer)
- The debtor's most recent single month of take-home pay after taxes
- Annual gross income divided by 12 as reported on the most recent tax return
- Monthly income after deducting all reasonable and necessary living expenses
Correct answer: The average monthly income from all sources received during the 6-month period ending on the last day of the calendar month before filing
Under 11 U.S.C. § 101(10A), CMI is the average monthly income received from all sources during the 6-calendar-month lookback period immediately preceding the filing, with certain exceptions.
Question 4: Which of the following income sources is EXCLUDED from 'current monthly income' in the bankruptcy means test?
- Social Security Act benefit payments (Correct answer)
- Rental income from investment property
- Child support received from an ex-spouse
- Net self-employment profit from a sole proprietorship
Correct answer: Social Security Act benefit payments
Social Security Act payments are specifically excluded from the CMI definition under 11 U.S.C. § 101(10A)(B), ensuring Social Security income does not affect Chapter 7 eligibility.
Question 5: What is a 'presumption of abuse' in a consumer Chapter 7 case and what does it trigger?
- A statutory finding that arises when disposable income exceeds set thresholds, which may lead to dismissal or conversion to Chapter 13 (Correct answer)
- A criminal presumption that the debtor committed bankruptcy fraud
- A trustee's finding that the debtor concealed assets prior to filing
- A determination by the court that the debtor can afford to repay all debts in full within 5 years
Correct answer: A statutory finding that arises when disposable income exceeds set thresholds, which may lead to dismissal or conversion to Chapter 13
Under 11 U.S.C. § 707(b)(2), a presumption of abuse arises when monthly disposable income multiplied by 60 months exceeds certain statutory thresholds, shifting the burden to the debtor to rebut or face dismissal/conversion.
Question 6: How can a consumer debtor rebut a presumption of abuse in a Chapter 7 case?
- By demonstrating special circumstances, such as serious illness or military activation, that justify additional expenses or reduced income not captured by standard deductions (Correct answer)
- By filing a sworn statement of financial hardship without any supporting documentation
- By choosing to file in a different state or judicial district with a higher median income
- By demonstrating the debtor has never received a prior bankruptcy discharge
Correct answer: By demonstrating special circumstances, such as serious illness or military activation, that justify additional expenses or reduced income not captured by standard deductions
Under 11 U.S.C. § 707(b)(2)(B), a debtor may rebut the presumption of abuse by providing documentation of special circumstances such as significant medical expenses or income reduction due to military service.
CBS CBS Consumer Bankruptcy & Debtor Education 2
What is the 'means test' introduced by BAPCPA for consumer Chapter 7 cases?