Means Testing and Qualifications?

Common Bankruptcy MythsThe means test is a mathematical formula established by congress, creating standards to qualify a person to obtain relief under the bankruptcy code and to determine whether they will be required to repay some of their debts or merely discharge them.

In order to put all persons on the same playing field, congress established both a time period for measuring income and set standards for allowed expenses based on family size, the location of the person applying for relief and other factors. The income and allowed expenses are used to determine whether the person is entitled to relief and if so under what chapter. The income allowed is called median income.

If a person is below median income, they qualify for relief under chapter 7 of the Bankruptcy Code and do not have to repay their debts. The person may, if they wish, apply for relief under another chapter, such as Chapter 13 if they wish to re-organize their debts such as paying arrearages on a secured debt such as a residential mortgage, commercial mortgage, or vehicle loan, through a plan over three or up to five years. In the event that the person’s income exceeds median they will be permitted to file for relief but will be required to repay a portion of their debts over a period of 5 years.


Purpose:

  • The purpose of the means test is to ensure that the persons applying for relief from debt (Debtors) pay the most that they can afford to their creditors.

Totality of the circumstances test:

  • The Court will look to the actual fact situation of the Debtor in order to determine whether the Debtor qualifies for relief under the Bankruptcy Code rather than merely using a mathematically formula as set forth in the means test. This provides a safety net for Debtors that have unusual circumstances which justify relief. This totality of the circumstances test is independent of the means test.

Presumption of Abuse:

  • If a Debtor fails the means test it is presumed that the application for relief under the Bankruptcy Code is an abuse and the case should be dismissed. This presumption can be rebutted if the Debtor produces evidence of special circumstances which justify the application for relief under the Bankruptcy Code.

The responsibility of the Debtor and of the attorney:

  • For all of these reasons it is important that Debtors provide complete and accurate information to their attorney for the preparation of their bankruptcy papers.
  • Attorney Gurdin provides each Debtor-client with a statement of the responsibilities of the Debtor-client and of the attorney in preparing and administering the bankruptcy proceeding.