Means Testing

Tutorial on means testing with BkAssist®

Scope of Tutorial

• This tutorial discusses means testing in BkAssist, including:– How to compute Current Monthly Income– The Chapter 7 means test– The Chapter 13 calculation of applicable commitment period and

projected disposable income

• Prerequisites: You should previously have viewed these online tutorials:– How to Use BkAssist– Setting Up a New Case

• In this tutorial, we’ll run the means test in the Sarah & Sammy Sample case that we created in the Setting Up a New Case tutorial

– If you want to follow along, download the file Sample_Sarah_Sammy_Basic.bkv to the BkAssist home directory and use the File/Receive menu command to load it into BkAssist (the Receive password is BkAssist). Then perform each of the steps illustrated during the tutorial.

– If you instead want to see the end result from following these steps, download and receive Sample_Sarah_Sammy_Complete.bkv instead.

Current Monthly Income• Scroll to the entry for “Current Monthly

Income (Form B22x)” on the Schedules & Forms Page. Double-click to bring up the CMI worksheet.

• Select your preferred method of entering CMI data. Hints:

– The first method (6-month grid) is best for debtors who have irregular income that differs from the Schedule I projections.

– The second method (YTD) is best for debtors with one job when you have at least 2 paystubs bracketing the 6-month lookback period (or 3 paystubs including year-end).

– The third method is best when you simply want to estimate the effect of the means test or when past and future income are the same AND you’ve already filled in the Schedule I data on the “Income” screen.

• Click on the Calculate buttons to enter CMI data for both debtors.

• Use the “?” button to refer to the extensive help about how to enter CMI.

6-month CMI grid• If you wish, enter the components of CMI on a 6-month grid.• BkAssist captures alimony as a special component because it will be treated specially on the modernized B22x

forms slated for December 2014.• BkAssist asks for numbers during the 6 calendar months immediately preceding the filing date (which is

09/30/2013 in the example).• BkAssist computes the averages automatically, as you type the monthly numbers.

YTD Paycheck Method• Use the YTD method when you have paystubs

bracketing the 6-month lookback period.– Which paystubs are needed depends on the

derived/received interpretation you select on the CMI screen.

– BkAssist uses a daily average of gross income to compute the wage contribution to CMI.

• Calculate 6-month averages of the other CMI components by hand and enter them in the blanks.

• The Reset button will:– Initialize the business income and expense

averages from the “historical” columns of all of the business entity income/expense worksheets.

– Initialize the other components from the Income screen data.

• Therefore, you can save time by filling in the business worksheets and the Income Screen first.

By-Hand Method• Use the by-hand method when you

wish to calculate the 6-month averages of all components, including wages.

• The Reset button will:– Initialize the wage average from

the employment information on the Income screen.

– Initialize the business income and expense averages from the “historical” columns of all of the business entity income/expense worksheets.

– Initialize the other components from the Income screen data.

• Therefore, you can save time by filling in the business worksheets and the Income Screen first.

Stale CMI Data• The “Check” function (Check button on the Schedules & Forms Page) will warn

you if you previously calculated CMI using a different filing date.

• When you revisit the CMI Screen, BkAssist will ask you what to do with stale information. If you are using the grid method to compute CMI, you can ask to have still-relevant grid entries preserved.

The Means Test Worksheets• The Chapter 7 and Chapter 13 Means Test worksheets are very large—you will need a

high resolution monitor (say, 1920 x 1200) to see all of them.– If you have a smaller monitor than that, use the scroll bars along the edges of the worksheet to

scroll missing portions into view.

• To launch the chapter 7 means test worksheet:– Be sure you have selected chapter 7 on the Case Info Page.

– On the Schedules & Forms Page, select Means Testing (Form B22A)

• To launch the chapter 13 means test worksheet:– Be sure you have selected chapter 13 on the Case Info Page.

– On the Schedules & Forms Page, select Commitment Period and Disposable Income (Form B22C)

• In either case, you will be able to most simply run the means test if:– You have already entered asset and liability information (including expiration dates and

monthly payment amounts) for secured debts and motor vehicles

– You have specified birthdays and ages on the Debtor, Spouse, and Dependents/Others Page

– You have completed the Income and Expense Screens, including information about all payroll deductions.

• The next two slides show the worksheets with highlighted overlays linking to a subsequent slide that discusses each region of the worksheet.

Chapter 7 Exclusions• Use the exclusions group to indicate whether either debtor qualifies for a means-test

exclusion related to service in the armed forces, reserves, or the National Guard.• In a joint case, if either spouse qualifies for an exclusion, BkAssist will generate separate

B22A forms for each debtor.

Chapter 7 Adjustments• Debtors who have motor vehicle operating expenses may also deduct an allowance for public transportation. In the pre-December-

2014 world, the deduction is a fixed amount taken from the IRS tables. In the post-December-2014 world, the deduction is up to the IRS allowance. To take the deduction, check the box and (optionally) enter the amount in the Deductions section of the worksheet.

• In our example, Sammy pays $70.00 per month for his Charlie Card, so we take this additional deduction.

• By default, BkAssist deducts all contractually due secured debt payments and arrears for “necessary” loans regardless of the stated intention—i.e., even if the debtor will surrender the collateral. Case law and the plain meaning of the statute support this “snapshot” approach to the means test, but case law in your district may demand that you exclude payments on surrendered collateral.

• Under the holding of Johnson v. Zimmer, 686 F.3d 224 (4th Cir. 2012), children who live part time with the debtor should be counted as fractional persons for purposes of the means test. Check the box to interpolate means-test values that depend on household or family size if the filing court follows Johnson. (For courts in the Fourth Circuit, BkAssist defaults this option on.)

• Line 21 of Form B22A provides for an adjustment to the housing and utilities allowances. The likely purpose of this deduction is to allow debtors to dispute the way the U.S. Trustee has subdivided the IRS Housing and Utilities Standard deduction into mortgage and non-mortgage components.

• Case law supports using line 21 to deduct extraordinary living expenses, such as the rent on an apartment the debtor has to rent in a distant city in order to secure employment.

• If you decide to take the allowance, supply a reason in the Adjustments section and enter an amount in the Deductions section.

Chapter 13 Adjustments• One way of reading § 101(10A) is that someone who is not a debtor (e.g., a non-filing spouse) can’t have “Current Monthly Income”.

Hence, a non-filing spouse’s income shouldn’t be counted in determining the applicable commitment period under § 1325(b)(4). Check the box to apply the marital deduction “above the line” if you subscribe to this interpretation.

• By default, BkAssist does not deduct contractually due secured debt payments and arrears for “necessary” loans if the debtor will be surrendering the collateral, in accord with Hamilton v. Lanning. You can override this choice if you wish.

• Under the holding of Johnson v. Zimmer, 686 F.3d 224 (4th Cir. 2012), children who live part time with the debtor should be counted as fractional persons for purposes of the means test. Check the box to interpolate means-test values that depend on household or family size if the filing court follows Johnson. (For courts in the Fourth Circuit, BkAssist defaults this option on.)

• Debtors who have motor vehicle operating expenses may also deduct an allowance for public transportation. In the pre-December-2014 world, the deduction is a fixed amount taken from the IRS tables. In the post-December-2014 world, the deduction is up to the IRS allowance. To take the deduction, check the box and (optionally) enter the amount in the Deductions section of the worksheet.

• In our example, Sammy pays $70.00 per month for his Charlie Card, so we take this additional deduction.

• Line 26 of Form B22C provides for an adjustment to the housing and utilities allowances. The likely purpose of this deduction is to allow debtors to dispute the way the U.S. Trustee has subdivided the IRS Housing and Utilities Standard deduction into mortgage and non-mortgage components.

• Case law supports using line 26 to deduct extraordinary living expenses, such as the rent on an apartment the debtor has to rent in a distant city in order to secure employment.

• If you decide to take the allowance, supply a reason in the Adjustments section and enter an amount in the Deductions section.

• BkAssist automatically deducts qualified child support and foster-care income, qualified retirement plan payroll deductions, and retirement plan loan repayment amounts. You cannot change the amounts in these fields—modify the Income Screen amounts instead.

Computation Factors• The means test depends on where the debtor lives, the debtor’s CMI, how many cars the debtor drives, the number

of persons in the debtor’s family, and the number of persons in the debtor’s household.

• BkAssist uses the debtor’s zipcode to determine the state, county, and metropolitan statistical area to be used in looking up IRS allowances.

• By default, BkAssist uses the number of automobile assets (owned or leased). You can override the count if you wish.

• BkAssist uses the birthdays on the Debtor and Spouse Pages and the dependent ages on the Dependents/Others Page to initialize the family composition count.

• BkAssist initializes the household size to include the debtor, spouse, dependents who live in the home, and other people who reside in the home. (“Heads on beds”)

• You can override either number if you wish.

BkAssist calculates the median income based on state of residence and household size.

Deductions

• The Deductions section of the worksheet shows the various deductions that will be taken on a long-form means test. This slide shows a portion of the Chapter 7 worksheet.

– The Additional button lets you specify extraordinary expenses that will be reported on the means test form even though they do not affect the presumption of abuse determination (chapter 7) or disposable income (chapter 13).

– The Chapter 13 worksheet has an additional button labelled Special for entering deductions that will be taken ahead of the disposable income calculation.

• BkAssist automatically uses the correct IRS allowances based on the “computation factors” shown on the worksheet. Let the mouse hover in a numeric field on the form to see an explanation of the number (such as shown here for the vehicle operation expense).

• For actual expense categories, BkAssist initializes the worksheet based on the Monthly Expenses Screen and on the payroll deductions you specify on the Income Screen.

• You can override any of the numbers on the form—BkAssist does not practice law for you by forcing you to use the initial numbers.– Use the Reset button at the bottom of the worksheet to restore the default values.

Marital Adjustment

• When a married debtor files a petition in his or her own right, they still must report their spouse’s income. (The only exception is when the debtor is filing under chapter 7 and the spouses are separated.)

• In order to honor the definition of Current Monthly Income in § 101(10A), only the spouse’s regular contributions to the household expenses of the debtor should be counted.

• The B22x forms accomplish this result by backing out so much of the non-filing spouse’s income as is not used for the debtor’s household expenses. The Marital Adjustment to Income dialog captures these adjustments.

• Sarah and Sammy are not separated, so no martial adjustment is appropriate. We wanted you to see how Sarah would deal with some of Sammy’s expenses if they were separated, though.

Deductions for Debt Payment• The Deductions for Debt Payment section summarizes information BkAssist gleans from the liability screens—

you cannot change these numbers.• The calculation of debt payments depends critically on what you put down on the liability screens:

– Be sure to specify the monthly payment for every secured debt– Be sure to specify a maturity date for every secured debt—BkAssist can’t compute the average of payments coming due in the

next 60 months if you don’t.– Be sure to identify priority debts as such and to specify the amount entitled to priority.– Be sure to identify debts secured by collateral that is necessary for the support of the debtor or dependents. Otherwise, BkAssist

will not factor the cure payments into the means test.

• By default, BkAssist excludes secured debts incurred after filing from the means test.– Thus, if you are required to file a B22A after converting from chapter 13 to chapter 7, the generated form will speak from the

petition date rather than the conversion date.– You can override this option on the Miscellaneous tab of the Legal Choices sheet (select Legal Choices from the Settings menu

on the main window).

• BkAssist computes the chapter 13 administrative expense in one of two ways:– If you’re filing under Chapter 7, BkAssist assumes that the plan payment in chapter 13 would equal the I-minus-J disposable

income.– If you’re filing under Chapter 13, BkAssist calculates the plan payment exactly and computes a trustee expense based on the

U.S. Trustee percentage table. For an above-median debtor, BkAssist reconciles the fact that the U.S. Trustee percentage number is likely different from the number your form plan requires you to use in calculating a plan: the plan payment used on the means-test form will yield the same administrative expense as the actual plan.

Overall Results

• BkAssist summarizes the means-test results in the Overall Results box.