21 December 2012
The means test in bankruptcy was one of the most important
changes to the bankruptcy code made in 2005 under Bankruptcy Abuse Prevention
and Consumer Protection Act, known as “BAPCPA.”
The means test is trying to make sure that people who have the “means”
to repay their debts, in fact due, conceivably through a chapter 13 (repayment
plan in bankruptcy), and are not allowed to simply discharge their debts completely
in a chapter 7 (liquidation in bankruptcy).
The way it works is that there are certain levels of income that if you
make more than, another test is triggered, which if you do not satisfy, you
cannot file a chapter 7.
An initial consideration is that if you were told you didn’t
satisfy the means test on a phone conference with a bankruptcy attorney, it is
best to have a more thorough investigation, probably involving an in-person
meeting. It may require a great deal of
number crunching before you have a good idea.
There may be a way to avoid the means test altogether. The issue to look at is whether your debt is
primarily consumer debt or business debt.
If your debts are primarily business debt, then you will not need to
satisfy the means test. Please understand
that these terms “consumer debt” and “business debt” are terms of art. Do not rely on a common sense definition, at
least exclusively. For instance, contrary
to common sense, one item in favor of potential debtors is that income tax debt
is generally considered business debt, even if the income tax debt is owed by
you in your personal capacity.
However, even if the means test does not apply, you are not necessarily
home free. There is still the threat
someone can accuse your case of still being filed in bad faith under § 707(b)(1) of the bankruptcy code. To determine this, like all of these
questions, a qualified bankruptcy attorney is typically needed.
In the event you are considering filing bankruptcy and want
to know whether you can qualify for chapter 7 or chapter 13, feel free to give
us a call.
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