The Biggest Landmine of All in the Bankruptcy Law’s Means Test

14 Jun The Biggest Landmine of All in the Bankruptcy Law’s Means Test

If you’re a higher income person considering bankruptcy, think about this: the biggest landmine in the means test is one that’s not even in the means test itself. Instead, this landmine is present because of human nature, the attorney client relationship, and the unique legal issues contained in the means test. Rather than step on this landmine, understand what it is, so you can avoid it.

The bankruptcy law’s means test is contained in the complex Form B22. This form’s purpose is to tell whether you should be routed into chapter 13 instead of chapter 7, and in some cases Form B22 might dictate the level of monthly payment in your chapter 13 plan. Obviously, the means test must be completed accurately if your bankruptcy case is to be successful.

The problem is that the means test requires the bankruptcy debtor to provide detailed and seemingly irrelevant financial data to the attorney, who then plugs this financial data into the correct places on Form B22. The attorney needs to interpret this data and perform calculations with it in order to complete Form B22 correctly. Not knowing how the data will be used, what the data is intended to represent, or how the data will be manipulated according to Form B22, the debtor may not be providing accurate or representative data to the attorney. And, not knowing what the client’s basis is for proving this data, the lawyer may misinterpret the data and present it incorrectly in the means test.

This leads to to the crux of the problem in the means test: the attorney is an expert at filling out Form B22, but often can’t tell what the source of the data is that the debtor has provided. Conversely, while the debtor is familiar withhis or her own financial data,the debtorcan’t tell howthe datais supposed to be used on the complicated Form B22. Consequently, when the means test has been completed, neither attorney nor client can really tell if the result is accurate. Typically, one side understands the form, and one side understands the data, but neither side understands both.

Thankfully, the solutionto this problem is simple: the attorney and client need to sit down and go through the means test, line by line, item by item.The attorney should explain what each line calls for, and explain how the client’s data was used to fill in the answers. Only in this way can the attorney and client be sure that the client’s income was not accidently overstated, or that the client’s expenses were not accidentally understated, on Form B22.

It’s human nature for the client to provide the fanancial data to the attorney, and for the attorney to plug this data into Form B22, and then for both sides to simply assume that they have done all they could do. However, the means test is uniqueamong the bankruptcy forms. Both sides should understand the data and also Form B22.

Overstating income or understating expenses is how completion of the means can go wrong. It will happen on the means test with some frequency if the attorney and client fail to jointly discuss the means test and understand together how it was completed. This takes time and energy. However, considering that often the client’s financial life is at stake in completing the means test accurately, it’s time well spent.

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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.

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