In 2005, Congress overhauled the Bankruptcy process and enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. One of the main purposes of this overhaul was the implementation of the Means Test. This “test” is a standardized test that all individuals filing for Bankruptcy relief must complete. The purpose of the test is to determine how much disposable income the person has in order to pay their unsecured debt.
When first completing the test, the Means Test will determine if the person qualifies for Chapter 7 relief. The test will examine your prior 6 months of income. Once the income is input, you will then be allotted certain deductions you can reduce your income by. This is where it gets confusing because the deductions are not necessarily numbers that match with you---for the most part, they are standardized figures based on your household size and where you live. At the end of the test, you will be left with a “disposable income” figure. If that figure is low enough, or even negative, the person qualifies for Chapter 7. This is supposed to show that the individual does not have any funds left over to pay to their unsecured debt (i.e. credit cards, medical bills, etc.).
Now, if there is sufficient disposable income remaining, then the test is stating the individual does in fact have some money to pay to those unsecured creditors. And if so, they’d need to then file for Chapter 13 relief and designate that amount of money each month to pay down their unsecured debt.
A caveat to this test came out of a case named In Re Lanning. In this case, it was ruled that if the debtor can show that a change has occurred, or is reasonably likely to occur, that change can be factored in outside of the confines of the means test. This case law can be crucial to individuals in ensuring they in fact qualify for Chapter 7 or to keep their Chapter 13 payment amount as low as possible. Our office understands how to use this case to our clients’ advantage.
