Bankruptcy Means Test Irony: As Incomes Drop, More May Have To File Chapter 13

11 Oct Bankruptcy Means Test Irony: As Incomes Drop, More May Have To File Chapter 13

As I have said before, the bankruptcy “Means Test” is a mean test. Now there is a new irony dealt by themeans test which has been required since the 2005 changes to the bankruptcy laws. On November 1, 2009 a new set of median income figures will apply to debtors seeking relief under bankruptcy that will kick more people when they are down. As people are loosing their jobs and the median income drops, more will be required to take the means test which could say that Chapter 7 bankruptcy is presumed to be an abuse of process. The bankruptcy Means Test will apply to, and potentially hurt, more people as unemployment rises and salaries drop.

I checked the numbers for bankruptcy debtors in my state, North Carolina. The median income for households with 3 or more members, in other words income for families, fell by several thousands of dollars a year. This is predictable since the NC unemployment rates rose to 10.8% according to the US Dept of Labor figures reported for August 2009.

As more workers loose their jobs, the median income, unsurprising, can drop as well.

If the median income figures for a state drops, it lowers the bar for debtors who will be subjected to the means test and the possibility of being denied help in Chapter 7 bankruptcy.

If debtors fail the means test, they often have to file a Chapter 13 repayment plan if they want to file bankruptcy. If a debtor is above median income, that Chapter 13 repayment plan will last for five years. Unfortunately, even though the means test says there is money available to make the Chapter 13 plan payments, real income and expense comparisons show that there is less or even no funds left once regular living expenses are paid.

Families who might not have had to take the means test prior to November 1st may now subject to take, and maybe fail the test. My experience with the means test has been that it is most unfair to people just above median income since many necessary, common, reasonable and/or actual expenses are not allowed as deductions on the means test.

see also:

Bankruptcy Means Test: Costly and Really Pointless by Susanne Robicsek, Charlotte NC bankruptcy lawyer

BAPCPA The New Bankruptcy Law: A Mean Law by Susanne Robicsek Charlotte NC Bankruptcy Lawyer

Bankruptcy Reform: Costly But Pointless 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? 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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