Amendments to the Bankruptcy Code were made in 2005 and one of the most significant additions to the law was the requirement of a debtor to pass the “means test” to be eligible to file a Chapter 7 bankruptcy. The means test is a calculation used by the bankruptcy courts to verify that a debtor is not abusing the bankruptcy system to discharge debts he/she can afford to pay.
If you pass the means test, you qualify to file a Chapter 7 case. If you do not pass the test, the court assigns a “presumption of abuse” designation. This means that in order to continue with your Chapter 7 filing, you must provide evidence to overcome this designation. In other words, you must prove to the court that although you failed the means test, you are not abusing the system and you still qualify for Chapter 7 relief. The state median income figures can be viewed at the U.S. Trustee’s website:http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.
There are certain individuals that are not required to pass the means test. For example, the means test does not apply to disabled veterans who incurred the debt while on active duty or if your debts are primarily business debts. You automatically “pass” the means test if your income is below the median for your state. Many individuals seeking Chapter 7 relief qualify based solely on their income level.
If your income exceeds your state’s median income, you are allowed to deduct numerous expenses from your income. For example, you can deduct your living expenses. When all of the deductions have been made, the remaining amount is multiplied by sixty. If the amount that is remaining indicates that you have the ability to pay a significant portion of your unsecured debt, the court will presume your filing is an abuse of the system. An experienced bankruptcy attorney can assist you with claiming all of your available deductions in order to improve your chances of passing the means test and also help you determine if a Chapter 13 filing would be beneficial to you.
You have the ability to challenge a presumption of abuse designation. You have the burden of proof in establishing special circumstances that warrant the court allowing you to file a Chapter 7 case. If you have questions regarding filing a Chapter 7 bankruptcy or other ways we can help you, contact us for a free consultation.