Bankruptcy Means Test: Costly and Really Pointless

02 Aug Bankruptcy Means Test: Costly and Really Pointless

The means test is a terrible requirement for people seekingbankruptcyprotection. 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. The means test doesn’t make the law fairer, and it makes it much harder especially on regular people who are in financial distress because of the failing economy.

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.

  • Earning more than the median incomedoes not meanthat you are not able file for Chapter 7 bankruptcy – just that you have totakethe Means Test.

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.

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 expected at the time of bankruptcy filing and into the predictable future.

Before the law changed, the debtor didn’t have to fill out complicated income/expense breakdowns that often doesn’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 was always what the law 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.

See articles on this site:

BAPCPA The NewBankruptcy 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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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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