Bankruptcy’s Means Test and Special Circumstances

05 Oct Bankruptcy’s Means Test and Special Circumstances

A bankruptcy judge can find that “special circumstances” exist to avoid the harsh impact of the Means Test now used in all above-median income cases.

Two days ago, I provided a very brief overview of the Means Test. I briefly summarized its three parts as: (1) Each debtor’s income for the six full months before filing (including a spouse’s income unless separated) is compared against the median income for the debtor’s household size in the home state; (2) An above-median income debtor’s income is tested against IRS allowances; and (3) Any excess is examined against the amount of debt this excess could pay over five years. I also noted that the IRS uses these allowances as discretionary guidelines for negotiating payments on tax debts, but Congress’ BAPCPA requires strict application for all above-median income debtors.

Cases to date have allowed special circumstances for separate households due to employment reasons, student loans, and unusually high but justifiable vehicle expenses. Cases have rejected special circumstances for high housing costs associated with an expensive suburb and its better schools, a zero percent dividend to unsecured creditors in an alternative Chapter 13 case, and a loss of income. Courts have gone both ways on 401(k) loan repayments. Many cases may be appealed, and different rulings on the same issues can occur in the future.

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L. Jed Berliner, Western & Central Massachusetts Consumer Lawyer

L. 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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