The Means Test
and
Presumption of Abuse
The following appears at the top of the Means Test
- The presumption arises.
- The presumption does not arise
- The presumption is temporarily inapplicable.
which are you?
-
- If you have filed bankruptcy and your case gets marked presumption arises or presumption of abuse it can be a bit frightening and seem like you've been accused of something wrong.
Here's the actuality of it all.
IN the year 2005 a new law called The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was born. Along with that new law came the Means test. This test was put into place to determine in a more automated way if the filer of bankruptcy was abusing the system. It really is a determination of whether the applicant is eligible for a Chapter 7 bankruptcy which is the type of bankruptcy that clears your debt away without the obligation to pay it back.
Before BAPCPA anyone of any qualifying income level could file bankruptcy and choose for themselves whether to file either a Chapter 7 or Chapter 13 bankruptcy.
The chapter 13 bankruptcy is more of a type of repayment plan that does clear some debt but mostly lowers the debt level and put a payment plan in place that the consumer can easily handle.
Before the legislation the choice, it appears, was left up to the conscience of those filing. Honest, hardworking people pay their debts if it's within their means. Yet there are always those work the system.
The Means test was put in place along with the Statement of Current Monthly Income to put some boundaries on the chapter 7 filings.
The credit card companies complained that it was too easy to clear away debt and that some were abusing the system in doing so.
There's an old saying that talks about taking the lead and setting an example. Well this shows what happens when you don't set a good example. It comes back on you.
Maybe those credit card companies shouldn't have abused the system and charged outrageous fees and percentage rates and the consumer in turn wouldn't feel a need to file a bankruptcy.
Just my thought!
The Means Test and Statement of Current Monthly Income have lowered the amount of chapter 7 filings as you qualify by verifying that your income is under the median income level for your state and household size.
If you do not fall under this median income level the rest of the form goes on to figure out what amount of disposable income you have left at the end of the month after listing qualified expenses.
If it is more than $166.00 a month you are not eligible for the chapter 7 and must move over to the chapter 13 which is a reorganization plan. This is the first point at which you can be marked as presumption arises (of abuse).
-
What is in the means test
There are eight parts to the means test.
Part I is directed at military personnel and those whose debt is not primarily consumer debt.
Part II is a declaration of ALL income.
Part III analyzes the income by figuring the average monthly income and comparing it against the median income for your state and household level. It is the first determination of whether presumption arises or not.
If you meet that level or are under it at this point you can check the assumption does not arise and file the Chapter 7 bankruptcy. You will need to proceed to Part VIII which is your signature and date.
If you are above the median income you need to continue with Part IV if applicable to you. This is a marital adjustment for those who file separately from their spouse.
Part V is a 4 part calculation of deductions.
Subpart A uses standards from the internal revenue service to claim deductions from your income for things such as food and clothing, out of pocket health care, housing and utilities, ect, the basic deductions.
Subpart B are deductions from health care insurance, disability ins., expenses to care for immediate family that are elderly or chronically ill. This is where if any expenses calculated from the standard deductions from part 4 are low in comparison to what your family spends and can be documented they are recorded in this section.
Subpart C is to list payments for debt that is secured by property. Subpart D is a total of all expenses.
Part VI is the next point of calculating presumption of abuse. It takes the total income arrived at in Part II and subtracts the deductions from Part V. That amount is then multiplied by the 60 months of a chapter 13 bankruptcy.
This is to calculate how much disposable income you will have in that 5 year period. If your amount is $7025.00 or less your presumption does not arise. Chapter 7 is still a possibility.
If this amount is more than $11,725.00 then the presumption arises and you must check that box at the top that says the presumption arises.You also have the opportunity to fill out Part VII which is a claim to more expenses than what has been listed if this applies in your case. Part VIII is where you sign and date the document.
For those that the figure is higher than $7025. but lower than $11,725 there is one more additional calculation in part VI.
It asks for the total of your non priority debt. (The debt that is unsecured). You then figure out what 1/4 of that debt is. You will then compare it to the figure you obtained in the upper Part VI.
If your 5 year calculation of disposable income is less than that 1/4 calculation of your total debt then again the presumption does not arise. If you end up with more income than debt at this level then the presumption does arise.
That is the final calculation. All must sign the document in Part VIII at this point.
You may at this point be totally confused by the sound of all this calculating. To see what you will be getting yourself into and help clarify all this information visit US Courts/Means Test
Other useful information
If after filing out the means test and submitting it to your trustee you do fall at the right level you can petition for the Chapter 7 bankruptcy but it is helpful to know that approximately 2 months after your bankruptcy file date the 341 Meeting is scheduled.
If you did not qualify for the Chapter 7 then you will be working out a payment plan to submit to court for a Chapter 13.
At the 341 meeting or any time during the bankruptcy the trustee in your bankruptcy case will then be reviewing the paperwork submitted and your current circumstances. You may be asked to submit any new pay stubs for employment or any other documentation they request.
The last 60 days of income is reviewed and if that time it possibly shows any increase in pay and can be determined that if you fall above the median income at that time then the presumption once again can rise and you will be expected to move your case to chapter 13 or risk a motion for dismissal.
Having this knowledge of what presumption of abuse means and what is figured out in this test can help in your preparation of considering bankruptcy and takes some of the mystery out of it.
The state median income level for all states can be found here. Note you will need an excel spreadsheet file to view. Another free option is openoffice.com which offers free software comparable to microsoft products.
return from means test to bankruptcy credit repair
return to credit repair resources home page
