Understanding The Means Test

The Means Test was another change that was added by the 2005 changes to the bankruptcy law.  It’s designed to force those that make over a certain amount to file a Chapter 13 bankruptcy instead of Chapter 7 under the theory that if the debtor is making over a certain amount of money (the “mean”), then he or she should be required to pay more back.

The initial threshold inquiry is determined by an objective standard based on the location of the debtor and the number of the debtor’s dependents.  If the debtor makes below the mean for that region and number of dependents, then the presumption of abuse does not arise.  If a debtor’s income exceeds the initial threshold, then further analysis is necessary.

This analysis is accomplished through a fairly complicated formula laid out in Bankruptcy Form 22A (in the case of Chapter 7 filings) or Form 22C (in the case of Chapter 13 filings).  Deductions are allowed for numerous items, and it is still possible for the presumption not to arise.

Finally, even if a presumption of abuse does arise, it is possible for a debtor to overcome this presumption with facts which overcome the presumption.  One final note – if a debtor’s debts are primarily non-consumer debts, then the means test analysis is complete, and no further action is required on the part of the debtor.  A presumption of abuse could still be asserted by the trustee, but the presumption will not arise automatically by resort to a comparison of the debtor’s income with a mean.

Future blog entries will focus on specific aspects of the means test.