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Bankruptcy Means Testing Under The New Bankruptcy Law
By Jameson Joyce, Fri Dec 9th
The rush to file ahead of the new law isover. Now what? Did you miss the boat if you didn't filebankruptcy before the new law went into effect? Absolutely not. Although the new law has made it muchmore difficult to file bankruptcy, most attorneys are findingout that the new law is manageable and filings are onthe rise. One of the most confusing parts of the new law is thebankruptcy means test.
In an effort to stop abuse, Congress decided toimplement a step to the process called the"bankruptcy means test".The new law requires a testto be performed by every debtor prior to filing bankruptcy. Theactual test is alot like doing your taxes. The means testrevolves around the median state income for the state in whichthe debtor will file bankruptcy. The means test is used to determine what type ofbankruptcy a debtor can file. The means test is anattempt to make chapter 7 available to only those debtors whoabsolutely need to file a chapter 7 bankruptcy. Most peopletrying to file want to try to file a chapter 7bankruptcy which can wipe out most debt quickly; a chapter 7case is usually completed in about 90 to 120 days with norequired
repayment plan. The other type of consumer debtorbankruptcy is a chapter 13 which requires a debtor tomake repayments to the court over the course of 3 to5 years. The means test is designed to weed out those people who don'treally need to file a chapter 7 in the hopes that more peoplewill have to file a chapter 13 and pay all, or aportion, of their debt back to their creditors through a courtordered repayment plan. Remember, the new law wasfunded by creditors so it only seems logical that the law wouldencourage the repayment form of bankruptcy. The actual means test can be quite simple if a debtor is belowtheir median state income. If a debtor is below the medianincome for their state, the debtor can file a chapter 7bankruptcy. Debtors who exceed the median income may still beable to file a chapter 7 but they must completeseveral additional steps in the test that are far morecomplicated. If a debtor fails the means test, the debtor is notprohibited from filing. However, a debtor who fails the testcannot file a chapter 7. To find your median state income and learn more about the newbankruptcy law, visit bankruptcyhelponline.org. About the author:Jameson Joyce is a legal writer for legalhelponline.org and Direct Lex, the global legalresource solution.
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