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Means Test Basics

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, commonly known as BAPCPA, imposed a “means test” on those filing bankruptcy. This means test primarily determines whether the chapter 7 filing is “presumptively abusive”.

In order to determine whether a presumption of abuse exists, the debtor’s current monthly disposable income (as determined by the means test itself) is multiplied by 60. If that amount is is equal to or greater than the lesser of $10,000 or 25 percent of the debtor’s non-priority unsecured debt, the presumption of abuse exists.

Presumptively Abusive doesn’t mean that the filer is a bad person…it just means that if the filer were allowed to stay in the chapter 7 bankruptcy and gain a discharge of debt, the law wouldn’t be followed.

If the filing fails the means test, the filer will have to convert to or file in the first place a chapter 13 bankruptcy, and pay a specific amount based on a form of the same test to unsecured creditors over what is typically a 5 year period UNLESS the filer is able to successfully rebut the presumption of abuse.

This means test only applies to individuals, not businesses, and only if the debt is primarily consumer debt, or debt incurred by the individual for personal, family or household reasons. If the debt is primarily non consumer i.e. for the purpose of earning a profit or involuntary like tax debt, the means test shouldn’t apply.