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Breaking down the bankruptcy means test, P.2

In our last post, we looked briefly at the first two parts of the bankruptcy means test. As we noted, these include determination of the debtor’s adjusted gross income and calculation of deductions for certain expenses.

The third part of the test is aimed specifically at calculating whether there is a presumption of abuse. In other words, given the debtor’s listed adjusted gross income and total deductions, is he or she ineligible for Chapter 7 bankruptcy protection? This is determined by subtracting the total deductions from the adjusted current monthly income and multiplying it by 60. This represents the debtor’s assumed monthly disposable income for the next five years. 

At present, if a debtor’s monthly disposable income is less than $7,475, there is no presumption of abuse. If the number is more than $12,475, there is a presumption of abuse, and the debtor is able to move on to the fourth part to describe any special circumstances that would overcome the presumption.

If the debtor’s disposable income is between the above two numbers, the debtor is required to calculate 25 percent of his or her total nonpriority unsecured debt, and determine whether his or her disposable income is enough to pay for it. If the debtor’s disposal income is less than one-quarter of his or her nonpriority unsecured debt, there is no presumption of abuse, but if it is more than this amount, there is a presumption of abuse and the debtor then has the opportunity to move on to the fourth part of the test and argue special circumstances.

In our next post, we’ll look at the fourth part of the means test and the importance of working with an experienced attorney in the bankruptcy process. 

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