02 Nov Ten Things I’d Change About BAPCPA-Part Five
Continuing with my wish list of changes to BAPCPA, next on my list are some changes to the expense side of the means test equation. In Part Three I talked about equalizing some income-side provisions to equalize the effect of those changes, and to make the provisions fair. Much the same needs to be done to the expenses that are a part of the means test, which can impact whether a debtor qualifies for a Chapter 7, or how long a Chapter 13 payment plan has to last.
I tell my clients that the means test is a kind of artificial budget, using average income over the six months prior to the bankruptcy petition date, and IRS guidelines for expenses.
One of the most glaring inconsistencies in BAPCPA is that a debtor who files a Chapter 7 can overcome the effect of the means test by showing “special circumstances.” The classic example of special circumstances is the debtor who has significant income over the six months before bankruptcy but loses his job just prior to filing a case. BAPCPA allows you to demonstrate that there is some circumstance which independently justifies a Chapter 7 filing.
The same artificial measure of income applies in Chapter 13 to determine whether a Chapter 13 payment plan has to last 60 months, or can be for a shorter term, and how much has to be paid to unsecured creditors. However, the “special circumstances” provision does not apply to Chapter 13. In fairness, if a circumstance justifies filing a Chapter 7 when a Chapter 13 would otherwise be indicated, it ought to justify a shorter plan term and an easier repayment schedule in Chapter 13.
Similarly, if there are issues or changes which would constitute “special circumstances” in the Chapter 7 context, any expenses associated with those should also be allowed as “above the line” deductions in Chapter 13 cases, reducing the income calculation dollar for dollar. So if you have been laid off, the means test shows your unemployment compensation, rather than what you were earning before you were laid off, and your plan reflects that reality as well. Again, it’s only fair to treat debtors with similar income and liabilities the same, regardless of whether they choose to file a Chapter 13 or a Chapter 7
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