The Means Test and the Business Debtor

The means test begins with current monthly income, which under section 101(10A) includes all income received in the six months before filing, averaged, but excludes Social Security benefits and certain other payments. Business revenue is not excluded merely because it is business income; however, the means test allows deductions for necessary business expenses. Rafael's gross receipts were $78,000, but $30,000 went to ordinary and necessary business expenses such as employee wages, fuel, repairs, and insurance. Those are deductible under the means test as actual business expenses, so his current monthly income is properly calculated at $48,000 divided by six, or $8,000 per month. That exceeds the $6,200 median for a household of three. Because his income is above the median, the full means test applies: he must calculate his disposable income by subtracting allowed expense deductions from current monthly income. The business expenses are not a dollar-for-dollar exclusion from the means test; they must be documented and reasonable. If the U.S. Trustee disputes the $30,000, Rafael bears the burden of substantiating each expense with receipts and payroll records. The median comparison alone does not decide the case, but it triggers the presumption of abuse analysis.

Under section 707(b)(2)(A), Rafael deducts living expenses according to the IRS National and Local Standards, plus actual expenses for certain items. The mortgage payment is deductible as a secured debt payment necessary to retain the home, subject to the Local Standard cap for housing; if $1,400 is within the local housing allowance, it is fully deductible, and any excess may be treated differently. The vehicle payment on a truck used exclusively for the business is a business expense, not a personal vehicle ownership expense; if it is already deducted as a business expense, it cannot be double-counted. The $600 in credit card minimum payments is not deductible at all under the means test; unsecured debt payments are excluded. After applying the standards, suppose Rafael's allowed deductions total $6,800. His monthly disposable income would be $8,000 minus $6,800, or $1,200. Multiplied by 60 months, that is $72,000. Because that exceeds $12,850 and exceeds 25 percent of his $85,000 in unsecured debt ($21,250), the presumption of abuse arises under section 707(b)(2)(A)(i). Rafael could rebut the presumption only by showing special circumstances under section 707(b)(2)(B), such as a serious medical condition or a call to active duty, which the facts do not suggest. The credit card minimums cannot be used to reduce disposable income.

Section 707(b)(3) permits dismissal if the debtor filed in bad faith or if the totality of the circumstances demonstrates abuse. Courts consider whether the debtor has the ability to pay a meaningful portion of unsecured debt, whether the petition was filed because of sudden illness, calamity, or unemployment, and whether the debtor's expenses are reasonable. Rafael's $1,200 monthly disposable income and $85,000 in unsecured debt suggest he could fund a Chapter 13 plan paying a meaningful dividend, which favors dismissal. On the other hand, he operates a small business employing two people; Chapter 13 may be feasible if his income is stable, but the means test result makes Chapter 7 vulnerable. Facts favoring Rafael include the business nature of much of his debt, which may support a finding that this is a business case rather than a consumer case; section 707(b) applies only to debtors whose debts are primarily consumer debts, and if more than half of his $85,000 is business debt, the motion may fail as a threshold matter. The court would examine the character of the credit card debt: if the cards were used for business expenses, they may be business debts. Rafael should document the business use of the line of credit and cards. If the debts are primarily consumer, the totality analysis is unfavorable given his income.