Bankruptcy and the Means Test in Maryland
Form 22 is a form used in Chapter 7 and Chapter 13 bankruptcy cases. It is very important in both of those kinds of bankruptcy cases, but in different ways. It’s somewhat complicated, and it deserves a discussion of its own.
Form 22 is a statement of current monthly income. In Chapter 7 it is called the means test because it determines whether the debtor has any disposable income. Schedules I and J provide a separate calculation of disposable income. If there is a significant amount of disposable income on the means test or on Schedules I and J, the debtor will need to convert to Chapter 13.
On Form 22, the court looks at the complete household income for the six complete months before filing. Social security income is excluded from this calculation by statute.
In Chapter 7, the question is whether the debtor(s) has any disposable income. If the income is below the median for a household of that size, the debtor(s) automatically pass the means test (but still has to pass the test of Schedules I and J). If the income is above the median, the debtor(s) will complete the long form, line by line deducting for income taxes, and all household expenditures. Some of the deductions are actual and some of them are based on numbers determined by the IRS. Debtors can deduct for payments on secured debts. If there is very little or no disposable income left, then there is no presumption of abuse and the debtor qualifies for Chapter 7 (but still has to pass Schedules I and J). If there is substantial disposable income left, the debtor may need to file Chapter 13 instead.
TABLE OF MEDIAN HOUSEHOLD INCOMES IN MARYLAND
Household of 1: $57,455
Household of 2: $73,947
Household of 3: $84,151
Household of 4: $100,928
In Chapter 13, the amount of the debtor’s monthly payment is determined by the disposable income on Form 22, the disposable income on Schedules I and J, and the amount of arrearage on secured debts for property that the debtor wants to keep. The payment will usually be the greater of: (1) the disposable income on Form 22, (2) the disposable income on I and J, (3) bearing in mind that the debtor’s total payments must be enough to pay 10% to the trustee, pay the full arrears on the secured debts for property he wants to keep, and pay at least a small amount to the unsecured creditors. The deductions are different from in Chapter 7; for instance, Chapter 13 debtors cannot deduct an ownership expense for vehicles they own outright (but Chapter 7 debtors can).
This test was introduced in 2005 as part of BAPCPA, the Bankruptcy Abuse and Consumer Protection Act. It has forced many more people into Chapter 13. The test has also made it more difficult to file bankruptcy at all with the additional paperwork, and lawyers have had to charge their clients more for the extra work.