Hard to believe that we are closing in on ten years since Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
The most significant impact on consumer bankruptcies was the creation of the means test, which is an exercise in completing a form that is similar to an offer in compromise before the IRS. Your income is compared to the median income of your state. You then are allocated deductions depending on the area where you live. If you are filing Bankruptcy in Kern or Inyo Counties, certain expenses are calibrated for those areas.
Congress created the means test as a way to prevent people from using Chapter 7 bankruptcy to discharge debt that they have the means to pay. If you “flunk” the means test, this would therefore be an abuse of the Bankruptcy law to let you get a Chapter 7 discharge. A motion is filed to dismiss your case, and the usual remedy is to convert your case to Chapter 13 and then pay back a percentage of your debt over time.
There are several ways to still pass the means test even if your income exceeds the state’s median.
Business debts. Chapter 7 filers whose debts are 50% or more business-related — as opposed to consumer related— do not need to pass the means test.
Disabled vets. Certain disabled veterans and active duty members of the military reserve or National Guard may be exempt from the means test.
Special circumstances. You may pass the means test if you can document special circumstances such as extraordinary health expenses for you or your family, and/or other life circumstances that make your Bankruptcy case unique.
Means testing can be a complicated process, especially for those whose incomes are above the median for households in their states.