The greatest change to the Bankruptcy Code brought about by BAPCA is that now debtors must qualify to file a Chapter 7 bankruptcy. This is not as terrible as is sounds. According to recent studies, approximately 85% of debtors who filed their case before BAPCA would have qualified to file under the new guidelines. A debtor who does not qualify may still file bankruptcy under Chapter 13 of the Code.

    (1)   Safe Harbor – Below Median Income for the State of Florida – A debtor whose household income falls below the median income for the State of Florida automatically qualifies to file a Chapter 7 bankruptcy. The “median income” is reported by the United States Census Bureau, and it represents the 50th percentile of household income. In other words, exactly one-half of Florida’s households have an income less than the reported “median income.” The median income figures are updated on February 1st and October 1st.

    (2)   What is included in income? Basically, all taxable income is included when determining household income, but there are certain types of common income not included, such as SSA benefits and income tax refunds.

    (3)   Means Test – Is there a presumption of abuse? – If a debtor’s household income is greater than the reported median income for the State of Florida, the debtor must complete a complex form known as the Means Test. This is a financial analysis that compares the debtor’s income to his “allowable” expenses to determine whether the debtor has disposable income that could be used to pay a percentage of the debt he is seeking to discharge in the Chapter 7 bankruptcy. The debtor’s actual expenses are not always used in the analysis. Rather, the debtor must use national and local standards published by the Internal Revenue Service.

        (a)   U.S. Trustee’s Office – Even more so than the Chapter 7 Trustee, the U.S. Trustee is the debtor’s arch nemesis. Since the enactment of BAPCA, the U.S. Trustee’s primary responsibility is the enforcement of the many ambiguous rules created by the bankruptcy changes. Number one on the list is making sure that the debtor’s attorney completes the Means Test Form correctly, but since the form itself is subject to interpretation, the U.S. Trustee often contradicts itself when advising attorneys how the form should be completed.

    (4)   Special Circumstances – If the debtor “fails” the Means Test, then the debtor cannot file a Chapter 7, unless the bankruptcy judge determines that there are special circumstances that allow the debtor to remain in Chapter 7. For instance, if the debtor’s current monthly income (“CMI”) is artificially inflated by a one-time severance payment that causes his household income to fall above the median income, the judge may allow the debtor to remain in Chapter 7.