Since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, individuals with primarily consumer debts have had to pass the bankruptcy means test in order to be eligible for Chapter 7. The means test determines whether Chapter 7 filers have the financial ability to pay at least 25 percent of their unsecured debt over a five-year period, in which case they are only eligible for Chapter 13. The means test tends to be a particularly complicated aspect of bankruptcy law, making it important to work with a qualified Kansas City bankruptcy attorney.
The first part of the means test looks at the income you received during the six months immediately before you filed for bankruptcy. If your annualized gross income falls below the median income for your applicable family size, you automatically pass the means test and can proceed under Chapter 7. If it exceeds the median income, however, you must complete the second part of the means test, which looks at your household expenses.
You can deduct certain household expenses from your monthly gross income. Some deductions, such as rent and car operating expenses, are limited to the IRS standard, while other deductions, such as health insurance and mandatory retirement contributions, are based on your actual expenditures. Once you have deducted all allowed expenses from your monthly gross income, the resulting amount is your monthly disposable income. As a result of certain expenses being capped and not all expenses being allowed, your disposable income on the means test may not be representative of your actual disposable income. If your disposable income on the means test is above a certain amount, your case is presumed to be an abuse of Chapter 7, and you are not eligible for a Chapter 7 discharge . . . unless you can successfully rebut the presumption.
You may be able to rebut the presumption of abuse, i.e., demonstrate to the bankruptcy court that you do not have the means to pay at least 25 percent of your unsecured debt over a five-year period, if there are special circumstances that should be taken into consideration. Special circumstances might include:
- Recent or imminent job loss
- Recent or imminent pay cut
- Recent injury or illness resulting in long-term disability
- Loss of benefits, such as unemployment compensation
- Separation or divorce from spouse
- Increases in allowed expenses
If your disposable income is below the threshold amount after certain deductions, the bankruptcy court may allow you to proceed under Chapter 7 and obtain a Chapter 7 discharge. The process for rebutting the presumption of abuse varies from court to court, but it usually involves submitting additional documentation and/or filing an affidavit explaining special circumstances.
The means test requires extensive knowledge of bankruptcy law and involves careful consideration of what income is included or excluded and what expenses are allowed or disallowed. To avoid making costly mistakes, contact an experienced Kansas City bankruptcy lawyer today.