Of all of the changes to the Bankruptcy Code made by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the means test is probably the most complex, confusing and frustrating change of all. Many people incorrectly assume that the means test prevents them from filing bankruptcy at all or forces them to file under Chapter 13 and enter a five-year repayment plan with their creditors. These assumptions are not true.
What is the Purpose of the Means Test?
Credit card companies, the banking industry and other lenders lobbied Congress to include the means test when it revised the Bankruptcy Code in 2005. The purpose of the means test was to prevent people from abusing the bankruptcy process by requiring debtors who could afford to pay at least a portion of their debts to file a Chapter 13 case.
In reality, the means test has done very little to prevent bankruptcy abuse but has created situations where some debtors are forced into a Chapter 13 case when they truly need to file under Chapter 7. While there are some debtors who need to be in a Chapter 13 case because they have sufficient disposable income to repay a portion of what they owe to their creditors, not all debtors belong in a Chapter 13 case.
Likewise, some debtors who do qualify for a Chapter 7 case choose to file under Chapter 13 to keep their home, stop a garnishment or protect other assets. Therefore, it is important to keep in mind that the means test is merely the first step in determining what chapter of bankruptcy you should file.
How is the Means Test Calculated?
The means test is a complex series of calculations based upon the debtor’s gross monthly income, allowable statutory deductions and the median income level for the geographic location where the debtor resides. It is not advisable for debtors to try to calculate the means test without the assistance of an experienced bankruptcy attorney because some types of income may or may not be included and some expenses may not be allowable or may be limited.
The median income levels used for the means test are based on information gathered by the Census Bureau. Allowable deductions from gross income (i.e. living expenses) are based on the national and local standards as calculated by the Internal Revenue Service. These figures must be used when calculating the means test and change to reflect the most current data.
If you do not meet the requirements of the means test for a Chapter 7 case, there are some cases where you can challenge the presumption of abuse. Your first step is to schedule a free bankruptcy consultation with our office to discuss your financial situation so that we can help you find an affordable solution to your debt problems.
Contact an Experienced Mount Holly Bankruptcy Attorney
Personal Approach, Professional Service, Affordable Payment Plans
The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
If you are experiencing financial problems due to debt, contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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