Means Test

The biggest amendment to the “old law,” Section 707(b)(2) of the “new” Bankruptcy Code requires every consumer debtor to complete a "means test" to determine whether a Chapter 7 filing is presumed to be an “abuse” of the Bankruptcy Code.  If the test is positive, the consumer debtor can only file a Chapter 13 reorganization bankruptcy unless the presumption of abuse will be challenged by the debtor.  Abuse is presumed if the debtor's aggregate current monthly income over the next 5 years, less certain statutorily allowed expenses is more than (i) $10,000, or (ii) $6,000 if the debtor's non-priority unsecured debt is no more than $24,000.  The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.  For example, if “abuse” is presumed because of a one-time bonus or severance payment, the presumption of abuse may be successfully rebutted.

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