27 May How Does Chapter 13 Bankruptcy Work? Part Two: The Means Test
In my previous article, I discussed the purpose for which Chapter 13 bankruptcy was originally intended before the credit card lobby convinced Congress that people who file for bankruptcy are bad people.
The October 2005 enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) saw the introduction of a new requirement to file bankruptcy: The Means Test.
It is not literally a test that a debtor needs to take and pass to file bankruptcy.
What the test does is look back at the income a debtor earned during the six months leading up to the date of the bankruptcy filing,(the means test calls this time period â€œCurrent Monthly Incomeâ€) and uses this income to determine whether the debtor has the funds (the means) to pay some or all of the debt that he owes to his unsecured creditors.
The problem with Current Monthly Income (CMI)is that the calculation is meaningless, because the test looks back at the past, not the present financial status of a debtor.
Why is this artificial test a problem?
Because people don’t live in the past, they live in the present.
The problems created by CMI will be discussed in the next article.
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