In 2005, Congress decided to revise the bankruptcy code, which hadn’t been changed much during the previous 25 years. Why did they choose to revise? Congress and bankruptcy courts had become increasingly concerned that too many people were filing for bankruptcy – and their cases approved – who could actually afford to pay their debts. The revised bankruptcy code is known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Written in this code is a provision called the means test. Let’s take a look:
The point of the means test is to determine whether the debtor has enough money at the end of the month to put toward paying their unsecured debts (e.g., credit card balances, medical bills, etc.). If you can afford these payments, the bankruptcy court will expect you either to file for Chapter 13 bankruptcy (which restructures your debt to be paid off in three to five years), or to not file for bankruptcy at all. If, however, you still choose to file for Chapter 7 bankruptcy, you are seen as doing so under presumption of abuse. This means that the bankruptcy court believes that you can afford the payments, but you are choosing not to pay by filing for Chapter 7 bankruptcy, which Congress may see as abuse. However, you may have good reason for continuing with the bankruptcy process, in which case the court may continue with your case, allowing you to explain in detail why you can’t afford the payments. If this is the case, you will need sufficient documentation to support your case.
If you pass the means test, you have two options: you can either continue to file for Chapter 7, or you can choose to file for Chapter 13. In Chapter 7 bankruptcy, most of your unsecured debts will be cancelled or forgiven. However, as we have already seen with Chapter 13, your debts are restructured into affordable monthly payments over a period of between three to five years. You should consult with your bankruptcy attorney for help deciding which is better for you, your case, and your financial future.
If you fail the means test, don’t worry, all is not lost. While there is no appealing the results of the test, you can retake the test in 6 months, as the means test examines your finances over the past 6 months. If you choose to retake the test and then you pass it, you are cleared to file for Chapter 7. If you fail again, or if you choose not to retake the test after 6 months, you can only file for Chapter 13, paying off your debts in three to five years, the exact timeline to be determined by the time your case is closed.
After you take the test, regardless of the results, always speak with your bankruptcy attorney. S/he knows your case better than anyone and will offer sound legal advice to help get you back on track. It’s worth noting that you are required to attend both a credit counseling session and a financial management course before and after filing, respectively. For all your bankruptcy needs, contact The Law Office of Barry R. Levine today by phone at 978-922-8440, or visit our website at http://levinelawoffice.com.