BusinessBankruptcy Means Testing Under the New Bankruptcy Law

Bankruptcy Means Testing Under the New Bankruptcy Law


- Advertisment -spot_img

The rush to file bankruptcy ahead of the new bankruptcy law is over. Now what? Did you miss the boat if you didn’t file bankruptcy before the new law went into effect?

Absolutely not. Although the new bankruptcy law has made it much more difficult to file bankruptcy, most attorneys are finding out that the new bankruptcy law is manageable and filings are on the rise.

One of the most confusing parts of the new bankruptcy law is the bankruptcy means test.

In an effort to stop bankruptcy abuse, Congress decided to implement a step to the bankruptcy process called the “bankruptcy means test”.

The new bankruptcy law requires a test to be performed by every debtor prior to filing bankruptcy. The actual test is a lot like doing your taxes. The means test revolves around the median state income for the state in which the debtor will file bankruptcy.

The bankruptcy means test is used to determine what type of bankruptcy a debtor can file. The bankruptcy means test is an attempt to make chapter 7 available to only those debtors who absolutely need to file a chapter 7 bankruptcy. 

Most people trying to file bankruptcy want to try to file a chapter 7 bankruptcy which can wipe out most debt quickly; a chapter 7 case is usually completed in about 90 to 120 days with no required repayment plan. The other type of consumer debtor bankruptcy is a chapter 13 bankruptcy which requires a debtor to make repayments to the bankruptcy court over the course of 3 to 5 years.

The means test is designed to weed out those people who don’t really need to file a chapter 7 in the hopes that more people will have to file a chapter 13 bankruptcy and pay all, or a portion, of their debt back to their creditors through a court ordered repayment plan. 

Remember, the new bankruptcy law was funded by creditors so it only seems logical that the law would encourage the repayment form of bankruptcy.

The actual means test can be quite simple if a debtor is below their median state income. If a debtor is below the median income for their state, the debtor can file a chapter 7 bankruptcy. 

Debtors who exceed the median income may still be able to file a chapter 7 bankruptcy but they must complete several additional steps in the test that are far more complicated. If a debtor fails the means test, the debtor is not prohibited from filing. However, a debtor who fails the test cannot file a chapter 7.

Disclaimer:  The contents of this site, such as text, graphics, images, and other materials contained on the page are for general information purposes only. This article is not a substitute for professional advice on the topics mentioned. This article does not create any form of offers to any legal or professional service. The site assumes no responsibility for errors or omissions in the contents. In no event shall the site be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action to follow the content, negligence or other tort, arising out of the use of the contents of the article. The blog reserves the right to make additions, deletions, or modifications to the contents at any time without prior notice. The site does not warrant that the site is free of viruses or other harmful components. It may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other author, agency, organization, employer or company, including the site itself. It also does not provide professional advice, diagnosis, treatment or any legal service. The site does not endorse official procedures, legal actions or qualified services and the use of its contents are solely at your own risk.


Please enter your comment!
Please enter your name here

Latest news

Divorce & Health Insurance

Recently, I had a question from someone who was going through a divorce and was concerned about lost health...

Divorce & Health Insurance

Recently, I had a question from someone who was going through a divorce and was concerned about lost health...

Dissolution by Affidavit – Personal Appearance Not Required

The elimination of the requirement of personal appearance for hearing in Missouri dissolution of marriage actions arose out of,...

Discover The Nine Vital Questions You Need To Ask Before Hiring Your Personal Injury Lawyer

Once you know the right questions to ask, hiring your personal injury lawyer is not only easy, but you...
- Advertisement -spot_imgspot_img

Disciplining And Firing Employees

Perception is Reality – Discipline with Care! Disciplining and firing employees is one of the most crucial areas for consideration...

Dental And Medical Collection Legal Guidelines

Every medical and dental practice has to deal with patients who do not pay. If it doesn't deal with...

Must read

Deeds of Variation – Are They Justified?

Deciding to make a Will and then actually putting...

Courtroom FEA: But how does FEA work?

Many legal professionals are exposed to Finite Element Analysis...
- Advertisement -spot_imgspot_img

You might also likeRELATED
Recommended to you