Appendix 2

• Jurisdiction: United States

Appendix 2

Completion of Official Forms 122A-1 and 122A-2 (Chapter 7) and Official Forms 122C-1 and 122C-2 (Chapter 13)

(Excerpted from the Advisory Committee Notes, 2005-2008 Amendment, which are available on the U.S. Courts website with the individual means test forms.)

A. Overview

Among the changes introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was a set of interlocking provisions defining "current monthly income" and establishing a means test to determine whether relief under chapter 7 should be presumed abusive. Current monthly income (CMI) is defined in § 101(10A) of the Code, and the means test is set out in § 707(b)(2). These provisions have a variety of applications. In chapter 7, if the debtor's CMI exceeds a defined level, the debtor is subject to the means test, and § 707(b)(2)(C) specifically requires debtors to file a statement of CMI and calculations to determine the applicability of the means test presumption. In chapters 11 and 13, CMI provides the starting point for determining the disposable income that debtors may be required to pay to unsecured creditors. Moreover, chapter 13 debtors with CMI above defined median-income levels are required by § 1325(b)(3) to use the deductions from income prescribed by the means test in order to determine what part of their income is "disposable," and pursuant to § 1325(b)(4), the level of CMI determines the "applicable commitment period" over which projected disposable income must be paid to unsecured creditors.

To provide for the reporting and calculation of CMI and for the completion of the means test where required, three separate official forms have been created: one for chapter 7, one for chapter 11 and one for chapter 13. This note first describes the calculation of CMI that is common to all three of the forms, then describes the means test deductions set out in the chapter 7 and 13 forms, and finally addresses particular issues that are unique to each of the separate forms.

B. Calculation of CMI

Although chapters 7, 11 and 13 use CMI for different purposes, the basic computation is the same in each. As defined in § 101(10A), CMI is the monthly average of certain income that the debtor (and in a joint case, the debtor's spouse) received in the six calendar months before the bankruptcy filing. The definition includes in this average (1) income from all sources, whether or not taxable, and (2) any amount paid by an entity other than the debtor (or the debtor's spouse in a joint case) on a regular basis for the household expenses of the debtor, the debtor's dependents, and (in a joint case) the debtor's spouse if not otherwise a dependent. At the same time, the definition excludes from the averaged income "benefits received under the Social Security Act" and certain payments to victims of terrorism, war crimes and crimes against humanity.

Each of the three forms provides for reporting income items constituting CMI. The items are reported in a set of entry lines — Part II of the form for chapter 7 and Part I of the forms for chapters 11 and 13 — that include separate columns for reporting income of the debtor and of the debtor's spouse. The first of these entry lines includes a set of instructions and check boxes indicating when the "debtor's spouse" column must be completed. The instructions also direct the required averaging of reported income.

The subsequent entry lines for income reporting specify several common types of income and are followed by a "catch-all" line for other income. The entry lines address (a) gross wages; (b) business income; (c) rental income; (d) interest, dividends and royalties; (e) pension and retirement income; (f) regular payments of the household expenses of the debtor or the debtor's dependents; (g) unemployment compensation; and (h) all other forms of income (the "catch-all" line).

Gross wages (before taxes) are required to be entered. However, consistent with usage in the Internal Revenue Manual and the American Community Survey of the Census Bureau, business and rental income are defined as gross receipts less ordinary and necessary expenses.

Unemployment compensation is given special treatment. Because the federal government provides funding for state unemployment compensation under the Social Security Act, there may be a dispute about whether unemployment compensation is a "benefit received under the Social Security Act." The forms take no position on the merits of this argument, but give debtors the option of reporting unemployment compensation separately from the CMI calculation. This separate reporting allows parties in interest to determine the materiality of an exclusion of unemployment compensation and to challenge it.

Alimony and child support are also given special treatment. Child support is not generally considered "income" to the recipient. See 26 U.S.C. § 71(c). Thus, child support is only part of CMI if it is paid on a regular basis for the household expenses of the debtor or the debtor's dependents. On the other hand, alimony and other forms of spousal support are considered income to the recipient, and thus are within CMI regardless of the regularity and use of the payments. To address this distinction, the instruction in the entry line for regular payments of household expenses directs that the entry include regular child support payments used for household expenses of the debtor or the debtor's dependents, and the instruction for the "catch-all" line directs inclusion of all spousal support payments that are not otherwise reported as spousal income.

The forms provide for totaling the income reporting lines.

C. The Means Test: Deductions from Current Monthly Income

The means test operates by deducting from CMI defined allowances for living expenses and payment of secured and priority debt, leaving disposable income presumptively available to pay unsecured nonpriority debt. These deductions from CMI are set out in the Code at § 707(b)(2)(A)(ii)-(iv). The forms for chapters 7 and 13 have similar sections (Parts V and IV, respectively) for calculating these deductions. The calculations are divided into subparts reflecting three different kinds of allowed deductions.

1. Deductions Under the IRS

Standards. Subpart A deals with deductions from CMI, set out in § 707(b)(2)(A)(ii), for "the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses...