Perhaps the most significant change to the Bankruptcy Code that came out of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ( BAPCPA) was the addition of what is referred to as the “Means Test.”

The Means Test is a calculation based upon your income and allowed monthly expenses that is used to determine whether you can file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.  For a detailed explanation of the Means Test you might want to read The Bankruptcy Means Test Explained In English.

One of the biggest problems with the Means Test (and there are many!) is that if have over a certain amount of Disposable Income ($182.50 in current monthly income available after allowed deductions, which equals $10,950 over five years) you are presumed to be abusing the Bankruptcy system by filing a Chapter 7 bankruptcy.

The U.S. Trustee’s Office is required to review Chapter 7 filings to see if there is a presumption of abuse.

If they feel that a presumption of abuse exists, he Trustee’s Office will in all likelihood file a motion to either dismiss your bankruptcy or to have it converted to a Chapter 13 bankruptcy.

So why is this a problem?

Because the Means Test takes a cookie cutter, one size fits all approach to expenses.  Some examples:

• You are only permitted to claim $147.92 per month per child under the age of 18 for educational expenses, and you are going to have to have documentation to support those expenses.  How many people actually keep receipts for school supplies, uniforms and expenses?
• If you must be in a Chapter 13, you must be in it for 60 months.  If you own an older vehicle and don’t have a car note, you can only claim an additional $200.00 per month for maintenance expenses.  So, if you own a 2002 car that is paid for you might have to be in a 13, while someone that purchased a 2012 vehicle on credit gets to claim the full amount of the car note.  What are the chances that a 2002 car will survive for the 60 months necessary to complete a Chapter 13 bankruptcy?
• In a Chapter 13 bankruptcy you are permitted to treat your withholding for retirement plans such as 401K expenses as an expense for your health and welfare, but you are not permitted to claim this expense in a Chapter 7 bankruptcy.  Leaving common sense at the door, you could be in a situation that the funds that you cannot claim for your retirement in a 7 will put you over the amount to be presumed to be abusing the bankruptcy system, but this same amount once included for Chapter 13 purposes would mean that you would pay nothing to your unsecured creditors in a 13.  Certainly an absurd result, but one that does occur with debtors that are on the border between 7 and 13.

Fortunately, some courts have begun to find that if requiring a debtor to convert to a Chapter 13 would not result in any payments to unsecured creditors, then a conversion is not necessary.  Other courts have found that they can look beyond the mechanical aspects of the Means Test to find that the particular debtor is not abusing the system.