The means test is the IRS based form of calculating disposable income in bankruptcy to determine if the case should be a Chapter 7 or Chapter 13; and if a Chapter 13, how long the commitment period should be. In addition to the means test, there is the schedule I which is now in the new very detailed format which came out last month that calculates debtor’s gross and net monthly income, and schedule J which is also in the new very detailed format that calculates debtor’s total monthly expense. Although the means test and the combined I and J calculate debtor’s disposable monthly income, the end result is not always the same amount. For instance, the means test may yield a negative disposable income, while I and J may be positive $500 a month for the same debtor! In this situation, debtor is well-advised to file a Chapter 13, instead of a Chapter 7, because the fact that there is disposable income in I and J may lead to a US Trustee motion to dismiss your Chapter 7 case, or convert to Chapter 13 based on bad faith if the disposable income is enough to pay at least say, 10% of your unsecured debt.

Be careful in calculating your means test because misstatements in the means test may be deemed a false oath by the court. And a false oath can lead to a denial of discharge!

In Re Gandy, when the debtor filed for Chapter 13 relief, he said he was single, had two dependents, a 48-year-old “Live-in Wife/Girlfriend,” a disabled 27-year-old son, and worked as a car salesman with a monthly income of $2,801. According to the means test he had a current monthly income of $4,333, which was below the applicable median income. The debtor subsequently filed an amended Schedule I in which he changed his marital status from single to married but made no other revisions. Two years after he filed for bankruptcy, the debtor converted his case to Chapter 7 in response to the trustee’s motion to dismiss. With the conversion to Chapter 7, debtor said he was unmarried, and had a monthly income of $4,333. The plaintiff filed a complaint against the debtor asserting that his discharge should be denied because he knowingly and fraudulently filed a false Chapter 13 statement of current monthly income, a false Chapter 7 statement of current monthly income and a false schedule I. The debtor responded by filing amended Chapter 13 schedules, which showed a current monthly income of $4,689, which resulted in annualized figure greater than the applicable median income. This doesn’t pass the smell test at this point.

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