Means Test and Payments for Surrendered Home

by Jed Berliner, Western & Central Massachusetts Consumer Lawyer

October 13, 2007

One of the many uncertain areas of the Means Test is what to do with the obligated secured payments when a debtor intends to surrender the property. Joining a growing majority of decisions, Judge Boroff of the Massachusetts Bankruptcy Court, Western Division, ruled that the obligation and the Means Test must be determined as of the filing date.

The obligation is not removed upon surrender, the Judge ruled, but upon the later discharge. In re Hayes, 2007 Bankr. LEXIS 3252. The statute is perfectly clear so there is no need to explore legislative history for contrary congressional intent. The decision does not explore whether abuse exists in these circumstances outside the absence of the Means Test’s presumption of abuse.

(Many of us have posted on the reform laws’ Means Test. A debtor’s income is calculated for the six full months before the filing, less Social Security income. If above the median income for the debtor’s household size, then secured debt payments obligated over the 60 months after the filing is subtracted and the remaining income compared against IRS allowances. Anything left over is compared with the amount of unsecured debt and repayments may be forced under a “presumption of abuse” unless a judge approves special circumstances. (There is some dispute over a court’s ability to find abuse if there is no Means Test presumption.) You will note the illogic of using income for the past six months and secured debt payments for the future 60 months. It’s enough to cross one’s eyes.)

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Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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Last modified: October 22, 2012