Bankruptcy Means Test: Secondary Presumption Saves

25 Mar Bankruptcy Means Test: Secondary Presumption Saves

Dear readers – after almost a week, we’ve finally come to the end of the bankruptcy means test form. We’ve figured out your current monthly income, your current monthly disposable income, your allowances and your deductions. And we’ve established whether you are an “above-median income” debtor or not. So we’ve discovered your “applicable commitment period” too.

By this time, we know whether 95% or more of you either are presumed to be abusing the system or not if you want to file a chapter 7 case. Once in a while, we find a debtor has just enough disposable income not to pass the presumption of abuse test but still not so much to pay very much under a plan. Our heroes who invented Form B 22 have just the thing for you. It’s the “Secondary Presumption.”

It’s more or less a “Goldilocks” rule for bankruptcy. If you don’t make too little to get out of the means test altogether and if you don’t make so much that you are presumed to be abusing the means test by filing chapter 7, you still may have some disposable income. But if you don’t have so much disposable income that you can’t fund a plan with either a certain number of dollars or 25% of your unsecured debt, you fall into the “just-right” zone where you pass the “secondary presumption.”

This comes up rather rarely, in my experience.

Nowadays, the United States Trustee is not just concerned with the means test. We used to think that if a debtor passed the means test, he was home free and could file a chapter 7 without any more worries. It ain’t necessarily so.

A bankruptcy case still could be dismissed for abuse under the “totality of circumstances” test.

More about that tomorrow.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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