What happens when the consumer fails the means test?
In a Chapter 7 case, if the consumer fails the means test he/she is presumed to abusive of the bankruptcy laws, and he/she would not be allowed to proceed unless proven otherwise.
Is that automatic?
For a presumption of abuse to halt the consumer’s bankruptcy petition, either or both the Trustee and the creditors must file a request and motion for hearing to dismiss the case or have it converted to Chapter 13.
If the request is going to be filed by the trustee
After the meeting with the creditors, the trustee has 10 days to file a statement after it is filed, it will be sent out to the creditors to inform them of the trustee’s decision, and to also give them an opportunity to file a motion to dismiss or convert the case.
Inside of 30 days, after the trustee’s statement was filed, he/she will:
File his/her own motion to dismiss or convert on the grounds of abuse, or since the trustee is not on the side of either the consumer or the creditors, explain why a motion to convert or dismiss is incorrect.
The short time limit only applies to the trustee requesting for a court hearing, the creditors can file any time before 60 days have elapsed since the first creditors meeting, if the consumer’s income is above the state median.
So if they (especially the trustee) do not file a statement, will the case be allowed to proceed?
If the consumer passed the means test and it was not challenged then the bankruptcy procedure should move along its course. Although there is such a case called Motion to Dismiss for Abuse under All Circumstances in which the trustee challenges the consumer’s seemingly extravagant expenses. The trustee would argue that if the consumer can spend a large amount of money, then he/she might as well file Chapter 13, because he/she can afford it, and that amount of money should suggest that the consumer would fail the means test.
What is the usual reason why consumers fail the means test?
If the consumer’s median income is above the state’s median income level.
What is the means test again and how does it work?
Under the new bankruptcy law, consumers who file bankruptcy must have their income go through a computation called the "means test." The means test is court sanctioned income verification procedure with the purpose of determining:
• Whether or not the consumer is eligible to file bankruptcya
• To keep people from abusing the bankruptcy system by filing when they don't have to.
• To determine which chapter to file, Chapter 7 liquidation or Chapter 13 repayment plan.
How is it calculated?
The consumer’s monthly income, after the subtractions according to the law, and multiplied by 60, has to end up being greater than 25 percent of the unsecured debt or $6000 if the 25 percent is less than $6,000, or it must be greater than $10,000.
Where can the consumer take the income test?
The means test is available at the approved credit counseling agencies and with most bankruptcy attorneys.
More resources about the means test: