In 2005, the Bankruptcy Code was amended. Numerous changes were made, including the addition of the “means test,” which is a mathematical formula that is applied to a debtor’s finances to determine whether they qualify to file a Chapter 7 bankruptcy. The test is designed to determine if a debtor is abusing the system by filing for debt relief when the debtor actually has the ability to pay his or her debts.
If you pass the test, you are allowed to file for debt relief under Chapter 7. If you fail the means test, the court assigns a “presumption of abuse” to your case and you have the burden of proof to overcome this designation.
Even state has a “median income” for the applicable size of your household. If a debtor’s income is less than the state’s median income, the means test is not applied. Additionally, if the debtor is a disabled veteran or the majority of the debtor’s debt was incurred while serving active duty in the military, the means test does not apply. In other words, in these circumstances you automatically qualify for a Chapter 7 filing.
If the debtor’s income exceeds the applicable state’s median income, the means test is applied. The formula includes deductions for certain expenses, including basic living costs and other specified expenses. Once all of the applicable expenses have been deducted, the amount left remaining is multiplied by 60. If the remaining amount is $6000 – $10,000, and it is at least 25% of your non-priority and unsecured debt, you fail the means test and the court presumes that your filing is an abuse of the Chapter 7 process.
If your filing is given the “presumption of abuse” designation, you have an opportunity to file an objection. The debtor must submit evidence demonstrating special circumstances that prove you should be allowed to file the Chapter 7 case even though your income falls within the abuse range. If you meet the burden of proof and convince the court your unique circumstances warrant a Chapter 7 filing, you can continue with your case as it is filed.
At The Law Office of Diane Anderson, our lawyer has faced Chapter 7 bankruptcy. She understands the anxiety and fear that accompanies working through this process. But, after coming out on the other side, she started her own law firm and is living a life with less worry and strife. Contact us today to get the help and guidance you need in order to take control of your finances.