The United States Bankruptcy Code has long offered debtors an opportunity to either eliminate debts or restructure the repayment terms for financial obligations that have grown unmanageable due to changes of life circumstance or other factors. Revisions to the law in 2005 introduced an additional quirk into the already confusing and complicated filing process in the form of the new bankruptcy means test that was for use to determine a debtor’s eligibility for Chapter 7 bankruptcy in lieu of Chapter 13 bankruptcy. In many situations, Chapter 7 bankruptcy represents a more desirable option because it results in the total forgiveness of many debts, whereas Chapter 13 simply stretches out the terms of payment over a 3-5 year period, with a 5-year bankruptcy plan being the norm.

The stated intent of the bankruptcy means test is to prevent debtors from fraudulent or abusive bankruptcy filings that would essentially excuse their debts without regard to other financial considerations such as income. Unfortunately, as a consequence of the provisions set forth in the amendments to the law, many individuals and families who are on the threshold or simple done a disservice by rigid bureaucratic expense schedules are locked into a Chapter 13 bankruptcy plan. This subjects them to an ongoing strain and does little to help them rebuild their financial standing or to adopt better practices.

Crunching Numbers

One of the discouraging and unavoidable facts of the bankruptcy means test is that it is solely calculated using raw number data. There is no consideration given to a family’s unique circumstances or any mitigating factors that impact a debtor’s ability to meet the demands of a particular repayment plan. This turns an already difficult event into one that can feel more than a little dehumanizing as your life is essentially torn apart around you, without any regard being given to the fact that it is your life. That seems contrary to the spirit of the bankruptcy code, which aims to offer both debtor and creditor at least a partially beneficial solution to an intractable financial struggle.

Instead, whether one is eligible to file for Chapter 7 bankruptcy hinges upon numbers. The bankruptcy court will review a debtor’s average monthly income over the course of six months prior to the filing date and compare that to the median income level for a similar party in the same state. This creates an immediate divide, as it means that only half of debtors (the half whose income falls below the median) are immediately granted the right to file.

Debtors whose income exceeds the median then have their income figures put through similar mechanisms to evaluate Chapter 7 eligibility. To make this calculation:

• The amount of approved living expenses is subtracted from income to come up with an amount that is considered available for debt repayment each month.
• That amount is multiplied by 60 to arrive at the 5 year total.
• If this result is greater than $10,000 then Chapter 7 is off the table
• If less than $10,000 but still in excess of your availability, then percentage based calculations of debt payment vs. debt amount come into play

Knowing What to Do Next

The odds are that if you are reading this, you are in a position where bankruptcy seems like it may be the best option. Take the step of consulting with an experienced attorney so that you can be sure that you make wise choices for your financial future. Contact the Arizona bankruptcy lawyers of the Harmon Law Office, L.L.C.

Joseph Devine

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What the Bankruptcy Means Test Means For You is a post from: Bankruptcy Court Online

For debtors seeking bankruptcy protection taking the bankruptcy “means test” can be a hassle that doesn’t always leave the debtor with a fair shake.

For debtors seeking bankruptcy protection taking the bankruptcy “means test” can be a hassle that doesn’t always leave the debtor with a fair shake. When the Bankruptcy Abuse Prevention And Consumer Protection Act (“BAPCPA”) was passed in 2005, it failed to truly do what it was designed to do, prevent bankruptcy abuse. What’s really happened is that many debtors are forced to take a “means test” that fails to take into account their real circumstances when calculating their ability to repay debt. Instead, the “means test” uses standardized deductions and expense allowances that may or may not reflect the reality of that debtor’s situation.

For example, a debtor who takes the bankruptcy means test is given a standard allowance for “telecommunications expenses” which are necessary for the health and welfare of the debtor and his/her dependents. However, there is no set definition of what a “telecommunications expense” can include, leaving it up to the judge’s discretion. Also, some people may need more “telecommunications expenses” than others, such as a self-employed debtor. Bankruptcy debtors who exceed the allowance allotted to them could be facing an uphill battle in proving that it is necessary. In the end, taking the test increases the amount of time, energy and paperwork needed by legitimate debtors who seeking immediate bankruptcy protection. The bankruptcy means test needs to be done away with and we need to return to a more sensible way of gauging a debtor’s ability to repay their debts.

Reed Allmand is constantly looking for ways to improve the financial situation of his clients. You can visit http://www.allmandandlee.com to view more articles like this and find great tips on managing your financial situation. Are you already considering bankruptcy? Take this Free Evaluation to determine if bankruptcy is right for you: http://www.allmandandlee.com/Free-Bankruptcy-Evaluation.php

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The Trouble With the Bankruptcy Means Test is a post from: Bankruptcy Court Online