Living with the Means Test
39 Pages Posted: 21 Feb 2007
Date Written: February, 2007
In 2005, Congress radically changed the nature of the consumer bankruptcy system in the United States with the enactment of BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005). Congress sought to make it harder for consumer debtors to obtain an immediate discharge of their debts in chapter 7. Instead, individual consumer debtors with even a modest projected ability to repay creditors out of future income were labeled abusers and were kicked out of chapter 7. The heart of the consumer debtor crackdown came in the adoption of a strict means test as a method of proving abuse.
The abuse provisions in BAPCPA introduced substantive and procedural adjustments to the practice of consumer bankruptcy that have had profound effects on debtors, creditors, attorneys, trustees, and judges alike. This article explores the impact of the means test on the players in the bankruptcy system. First, we discuss abuse testing in the Bankruptcy Code, and note particularly the influence that the consumer credit lending industry exercised in bringing about the 2005 Amendments. Next, we turn to the statute to perform a detailed analysis of the provisions of the means test and its necessary calculations and confusing permutations. Failing or passing the means test is not the end of the story, of course. From there, we consider how a debtor can rebut the presumption of abuse should he fail the means test, and how abuse may nonetheless be found should he pass. We observe that new procedural provisions will add teeth to the means test determination; specifically, through required trustee reports and abuse motions. Finally, we close with an examination of added sanctions and advice restrictions imposed on attorneys. Throughout, we use illustrative emerging case law to highlight several interpretive controversies that have arisen under BAPCPA. Congress sought to implement as mechanical a test as possible; however, the cases show that judicial discretion remains a necessary component to ensure access to bankruptcy relief for those in need, and to weed out those who could otherwise manipulate the system.
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