Tucson Bankruptcy Blog
Private Disability Benefits Must be Included in CMI Calculation for Statutory Means Test
In Blausey v. U.S. Trustee (2009), the Ninth Circuit Court of Appeals held that the debtor was required to include her private disability insurance benefits in the calculation of Current Monthly Income (CMI), and that a subsequent inclusion of the benefit in the CMI triggered a presumption of abuse of Chapter 7 Bankruptcy under 11 U.S.C. § 707(b)(2). That section allows the U.S. Trustee to move for dismissal where the statutory means test demonstrates a presumption of abuse. The court affirmed the bankruptcy court’s decision to dismiss the case based on the presumption of abuse.
CMI is defined as the” average monthly income from all sources that the debtor receives…without regard to whether such income is taxable income.” (11 U.S.C. § 101) It includes “any amount paid by any entity other than the debtor…on a regular basis for the household expenses of the debtor or the debtor’s dependents.” Id. There are three specific exclusions: benefits received under the Social Security Act, payments to victims of war crimes, payments to victims of terrorism.
In this case, debtor received a monthly private disability benefit of $4000 per month that was intended to compensate the debtor for the loss of her ability to perform her job. The Court determined that the exclusion of the benefit supplanted the purpose of the statutory means test that uses CMI as a factor to calculate a debtor’s ability to pay their debts. The means test is an “income/expense screening mechanism” to determine whether a person is entitled to “needs-based bankruptcy relief” and to “ensure that debtors repay creditors the maximum they can afford.”
The debtor argued that they did not need to include the benefit because it would not be include under the calculation of income for tax purposes. The Court did not find the debtor’s justification persuasive since, whether the IRS considers the benefit to be taxable income does not impact the availability for the debtor to use the benefit/income to repay creditors.
KEYWORDS: Private Disability Benefit, Calculation of Monthly Income (CMI), Means Test, Taxable Income, Needs-based Bankruptcy Relief, 11 U.S.C. Section 101, 11 U.S.C. Section 707, Blausey v. U.S. Trustee, Debtor Ability to Pay Debt, Repay Creditors, Ninth Circuit Court of Appeals, Presumption of Abuse, Chapter 7 Bankruptcy
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