American Bankruptcy Law Journal, Vol. 83, p. 395, 2009
29 Pages Posted: 2 Jul 2009 Last revised: 21 Sep 2009
Date Written: September 16, 2009
This article makes the case against backstopping formulaic means testing under the 2005 bankruptcy law with another round of broad discretionary review of ability to repay debts, an issue that arises in both chapter 7 and chapter 13. The U.S. Courts of Appeal have split on this issue in chapter 13, particularly on the meaning of the phrase “projected disposable income,” which determines how much has to be paid in a plan to unsecured creditors. The issue may soon go to the U.S. Supreme Court. The primary effects of an interpretation in favor of broad discretion would be to get tougher on debtors than the law’s formula did, while making the system more expensive to access for all. This article considers the arguments against the discretionary approach, based on statutory language, stated purposes and policy analysis. It also considers how Congress could revise the means test, in the process showing why the courts lack the institutional capacity to do this job well. The courts can only make the law more complex and costly to use. If correction is needed, means testing reform should be left to Congress.
Keywords: consumer bankruptcy, means testing, bankruptcy reform, projected disposable income, chapter 13 completion
JEL Classification: K2, K41
Suggested Citation: Suggested Citation
Braucher, Jean, Getting Realistic: In Defense of Formulaic Means Testing (September 16, 2009). American Bankruptcy Law Journal, Vol. 83, p. 395, 2009; Arizona Legal Studies Discussion Paper No. 09-26. Available at SSRN: https://ssrn.com/abstract=1428927