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I passed the means test, so how come I still have to file a chapter 13?

Posted on Mar 2, 2010 in Bankruptcy, BAPCPA, Chapter 13, Chapter 7

Most people who file bankruptcy want to file a chapter 7.  This eliminates most debts right away. Some people aren’t eligible for chapter 7.  Most of these people end up having to pay their creditors for up to 5 years in a chapter 13 case.  How come?

Back in 2005, Congress decided that people who could pay something to their creditors had to do so to get relief in bankruptcy. In fact, Congress decided that people who made more than the median income were presumed to be abusing the system if they tried to file a chapter 7 case to eliminate their debts.

So they devised a complicated means test.  If the prospective debtor “passed the means test” then that meant that the debtor no longer is “presumed to be abusing the system” by filing a chapter 7 case.

But that doesn’t mean that our prospective debtor is home free.

Every debtor has to prepare a budget of income and expenses and file it as part of their bankruptcy case.  And if that budget of income and expenses shows that the debtor has, or even may be expected to have, significant disposable income,  the United States Trustee might try to prove that the debtor is nevertheless abusing the system, even if the debtor “overcomes the presumption of abuse” by “passing the means test.”  If under the “totality of circumstances” the court determines that the debtor’s chapter 7 case is abusive, the court could still dismiss a debtor’s chapter 7 case for abuse.

Oddly enough, this entire analysis only applies for a debtor whose debts are primarily consumer debts – or debts incurred for personal purposes.  A debtor with predominantly non-consumer debts isn’t even subject to the means test at all.

Who says bankruptcy is easy?  For more information about consumer debts as opposed  to non-consumer debts in bankruptcy, click here.

For careful and thoughtful analysis of your case, call on Lakelaw – serving debtors in Illinois and Wisconsin – at 1 866 LAKELAW (525-5329).

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