The Means Test for a Chapter 7 bankruptcy was enacted into law in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The Means Test has been an attempt at determining who is eligible for filing a Chapter 7 bankruptcy. Basically, the Means Test law states that if a household who wants to file a Chapter 7 makes at or below the median income for the same size household within their state, the filers automatically qualify to file a Chapter 7. If the household income is more than the median income, the filers have to pass the Means Test in order to qualify. The Means Test is a complicated system of determining how much disposable monthly income a filer has, and if it is lower than a certain amount, they can still file a Chapter 7.
A new Quick Poll taken by the American Bankruptcy Institute was released February 16, 2012. The results of the poll showed: “A majority of respondents believe that unemployment benefits should be excluded from the debtor’s current monthly income (CMI) for means testing purposes because they qualify as ‘benefits received under the Social Security Act.’ Fifty-eight percent agree that unemployment benefits should be excluded from the debtor’s CMI as part of the means test in bankruptcy.”
The reasoning behind most of the respondents voting that unemployment benefits should not be considered as part of the means testing is found in bankruptcy law under 11 U.S.C. 101 (10A)(B). This law states that means testing: “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…but excludes benefits received under the Social Security Act.” An American Bankruptcy news article reporting the poll, said that bankruptcy court rulings have been divided on the issue of whether or not the benefits are directly or indirectly related to the Social Security Act.
“The American Bankruptcy Institute membership includes attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information.”
So, should unemployment benefits be included in the Means Test?
If only fifty-eight percent of this knowledgeable group can say they think unemployment benefits should be excluded from the means test, and bankruptcy court judges are divided on the issue, what is it that is so hard to grasp in the process that will make the law fair with a consensus of Americans supporting the idea?
Maybe it is a fact that Americans these days seem not to be able to get a consensus on anything, or maybe there is an underlying problem with the 2005 law.
The truth is that unemployment benefits, only a percentage of what a person made when employed, is not likely to completely cover the living expenses of the filing debtor or debtors, but is much more likely to bring the filer or filers more debt.
So, if you force a person or persons into a Chapter 13 who have to use unemployment benefits in determining the Means Test, is it really fair to the filers who are seeking a fresh new start in bankruptcy?
- Chapter 7 Questions and Potential Answers (betterbankruptcy.com)
- Chapter 7 and When to File a Non-Consumer Bankruptcy (betterbankruptcy.com)
- Chapter 7 Bankruptcy for a Family of Four (betterbankruptcy.com)
- Report of No Assets in a Chapter 7 (betterbankruptcy.com)
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