Friday, September 22, 2006

Means Test and BAPCPA

On April 20, 2005 President Bush signed what has been termed the biggest rewrite of U.S. bankruptcy law in a quarter century. This bill, ("the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005") takes direct aim at the ability of consumers to discharge their debts through Chapter 7 Liquidation by making the process more difficult, more limited in scope, and more expensive for consumers. The intent of the new law is to force debtors to file under chapter 13 rather than chapter 7 of the Bankruptcy Code.

Means Test for Chapter 7 Eligibility

A means test will determine whether a debtor can file for Chapter 7 bankruptcy. Anyone with an income below the median income for families of the debtor's size (the median income for a single person in New York is approximately $42,000 to $44,000) will be exempt from this test and may automatically file under Chapter 7. For those debtors above the median income, however, a presumption of abuse on the part of the debtor is triggered; the debtor has the burden to rebut the presumption.

In applying the means test, the average income over the past 6 months is used, regardless of present actual income. From that income one then subtracts:
-the recognized local and and national IRS standard expenses for food, clothing, ultilities, car payments and housing
- also subtracted from this figure are all priority debts, any secured debt that will become due in 5 years, charitable contributions, education expenses, and the continued care of a sick or elderly relative.

The net amount after deducting these expenses is deemed "disposable income".

If the debtor does not have at least $100 disposable income per month, he or she may file Chapter 7.
If however, the debtor has at least $166.67 excess per month, he or she must file Chapter 13.

Please remember that the bill's provisions will become effective on or about October 17, 2005. If you have any questions regarding the above Means Test or any of the Bill's provisions, please do not hesitate to contact me.


Jim Shenwick

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