Cathy Moran wrote an excellent article describing why the the Means Test makes little sense and I saw from reading her article that she is just as frustrated as I am with this pointless test. As a bankruptcy lawyer, it is my job to help my clients get as fair a treatment as possible. Luckily, much of the “old” bankruptcy laws remains buried beneath the veil of the new requirements of the bankruptcy law, and bankruptcy lawyers are trying hard to lift the veil so that clients who can’t pay their debts are not turned away from help in bankruptcy court.
The bankruptcy Means Test must be taken by consumer debtors filing for bankruptcy if the income received in their household in the six months before filing for bankruptcy, times two, is greater than their state’s median yearly income. Earning more than the median income does not mean that you are not able file for Chapter 7 bankruptcy – just that you have to take the Means Test.
The means Test will give a result that shows whether or not the debtor is presumed to be abusing the system by attempting to file for Chapter 7 bankruptcy. Many people who are above median take the test and pass. Even if you fail, the presumption can be rebutted by special circumstances to show you are not abusing the system.
The pointlessness of this test is that bankruptcy laws have always required that bankrupt debtors reveal all income earned for at least 2 years prior to the year of bankruptcy filing, as well as what the true income that was at the time of bankruptcy filing and into the predictable future. The debtor didn’t have to fill out complicated income/expense breakdowns that often don’t reflect their true income situation.
If the bankruptcy Means Test is failed, the debtors have to prove to the Court that they can’t pay – but that is essentially what the law always required. Prior to the 2005 law changes, we started with real numbers and didn’t have to jump through mindless hoops first. If the true numbers indicated that the debtors had the ability to pay, then Chapter 13 was the appropriate avenue. The means test just puts a spot light on the most recent six months by by requiring people to look back six months to come up with what the government says is their “CMI” current monthly income. Since it only looks at “what was” and not at “what is”, the figures either just right, too high, or too low. Translation: the bankruptcy means test often indicates a false figure. It has absurd results and it has done nothing to improve the bankruptcy laws.
BAPCPA The “New” Bankruptcy Law: A Mean Law October 17, 2007 by Susanne Robicsek Charlotte NC Bankruptcy Lawyer
Bankruptcy Reform: Costly But Pointless July 31, 2008 by Cathy Moran, Bay Area CA Bankruptcy Lawyer
Part Four: Kinds Of Income Reported In Bankruptcy; What Is CMI, Also Known As Means Test Income? March 12, 2007 by Susanne Robicsek Charlotte NC Bankruptcy Lawyer
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