What Happens if You are Slightly Over the Means test?


The means test was devised by Congress in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act to help protect creditors from abuse by debtors whom formerly had filed bankruptcies in a serial fashion. The number of times an individual can file within a certain time frame was introduced into the law to help alleviate such practices. In order to qualify to file a chapter 7 bankruptcy, a filer has to be able to pass the means test. What happens if you are slightly over the means test?

Median household income and GDP per capita lev...

Median household income (Photo credit: Wikipedia)

What the Means Test is in Bankruptcy Law

The means test is a way for the federal government to determine whether or not an individual makes too much household income to be a part of a chapter 7 liquidation process, the simplest form of bankruptcy.

Basically, if an individual’s household income for the previous six months before filing is as high or higher than the state’s median income for the same size household within the state the filing debtor lives, he or she must pass the means test to file a chapter 7 bankruptcy. Debtors whose income is below the state’s median income are not subject to the means test.

If your disposable monthly income is $182.50 or less under the means test formula, you pass the means test and qualify for filing a chapter 7 bankruptcy. That is true even though your income might be slightly higher than the household median for your state.

If you don’t qualify to file a chapter 7 bankruptcy because of failing the means test, you can seek to file a chapter 13 bankruptcy instead. A chapter 13 bankruptcy is a type of reorganization plan of paying all or part of your secured debts over a 3 or 5 year plan.

Circumstances Allowing You to be Slightly Over the Means Test

There are special circumstances that will allow a filing debtor to be slightly over the means test and still qualify to file a chapter 7 bankruptcy.

If the filing debtor’s disposable monthly income is higher than the specified floor amount under the means test, a presumption of abuse can be assumed under bankruptcy law. If a presumption of abuse is found under the means test, it may only be rebutted in the cases under special circumstances

However, special circumstances do not automatically confer judicial discretion. A debtor has the opportunity under special circumstances to try to legally adjust income by documenting additional expenses or loss of income in situations caused by a medical condition or being called or ordered to active military service. The assumption of abuse can be rebutted in these cases only when the additional expense adjustments or loss of income are significant enough to change the outcome of the means test. Otherwise, abuse will still be presumed despite the special circumstances.

Figuring out your means test in bankruptcy can be very complicated for the average layman. It is highly recommended you seek out the help of an experienced bankruptcy attorney to help you determine whether or not you can qualify for filing a chapter 7 bankruptcy, especially if believe you have special circumstances before filing.

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