Posts Tagged ‘Means Test’

The Test No One Discusses in Bankruptcy

Friday, May 4th, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

The test that everyone wants to talk about when they come in for a consultation is the Means Test. Folks generally want to know if they qualify to file Chapter 7 by passing the Means Test. This test is pretty simple. If you are below the state median income you qualify. Everyone breathes a big sigh of relief that they won’t be forced into a repayment plan under Chapter 13. The problem with this is the Means Test is where the analysis begins, not where it ends. The actual income and expenses of the Debtor must be taken into account in order to pass the not much discussed “Totality of  Circumstances Test.”

Even if a Debtor is below the median income on the Means Test, if the Debtor has disposable income on the bankruptcy schedules, the Debtor may not qualify to receive a discharge under Chapter 7. This is called the Totality of Circumstances Test. If a Debtor has disposable income to pay back unsecured creditors, the Trustee can file a notice stating that receiving a discharge under Chapter 7 would be an abuse. Not many folks talk about the Totality of Circumstances Test, and the only test you can find on the internet is the Means Test. Inevitably, folks do some research on the internet, find out they are under their state’s median income, and automatically think they can receive a discharge under Chapter 7. Therein lies the mistake. Passing the Means Test just gets you to the starting line, a better analysis needs to be performed to see if you can finish the race.

I recently had the opportunity to review Warren Sapp’s bankruptcy petition when I was interviewed by a Tampa Bay Times reporter. Link to the story can be found here.  I previously wrote an article about the reason why I, and other bankruptcy attorneys, think that Mr. Sapp filed for bankruptcy. The garnishment. Another question folks had was how could a person with so much income file Chapter 7. Looking over the schedules, it did not appear Mr. Sapp had substantial income in the six months prior to filing the Chapter 7 Bankruptcy petition. What I believe will be problematic for Mr. Sapp is the amount of disposable income he shows on his schedules. While Mr. Sapp does not fail the Means Test, Mr. Sapp lists more than $4,500.00 in net monthly income on his schedules, which could  be viewed as an abuse is he receives a discharge under Chapter 7. I guess we will have to wait and see.

In the meantime, if you want to find out if you not only qualify to file Chapter 7 Bankruptcy, but will be able to receive a discharge under Chapter 7, call us for a free consultation. We have more than 30 years combined experience representing individuals in bankruptcy.

You Can Still File Chapter 7 Bankruptcy

Saturday, March 31st, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

There has been a lot of misinformation on the Internet about folks not being able to file Chapter 7 bankruptcy. Well I am here to tell you that people can and are filing Chapter 7.

One of the big changes that occurred when Congress amended the Bankruptcy Code in 2005, was requiring debtors seeking to file bankruptcy to file a Statement of Current Monthly Income and Means Test Calculation, commonly referred to as the Means Test. In order to qualify for filing Chapter 7, a debtor’s net income has to fall below the state median income. The Bankruptcy Code utilizes the IRS standards when determining what the state median income is. To determine if a debtor “passes” the Means Test, the starting point is to find the median income for the state the debtor resides in, determine the household size, and analyze the proper deductions that can be taken on the Means Test for a client or prospective debtor. There are many deductions that can be taken on the Means Test including healthcare costs, payments to your mortgage lender, and vehicle expenses. All vehicle deductions on the Means Test are not available to every debtor after a 2011 Supreme Court decision, that you can read about here. If you are considering filing for bankruptcy it is important to hire an experienced bankruptcy attorney who knows what deductions can be taken on the Means Test. Lawyers who are unfamiliar with deductions on the Means Test may mistakenly take deductions that are not allowed, file Chapter 7, and ultimately have the bankruptcy dismissed by the U.S. Trustee for being an above median income debtor.

People still qualify for Chapter 7 bankruptcy. The first step in finding out if you qualify is to have an experienced bankruptcy attorney “run” a means test for you. If you are thinking about filing bankruptcy and want to find out if you qualify for Chapter 7, contact us today. I can assist you and determine if you qualify to file Chapter 7, and also explore other options if bankruptcy is not right for you.

What does the Ransom decision mean

Friday, March 30th, 2012

By: Marshall G. Reissman Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.

In January, 2011, the United States Supreme Court ruled that if a debtor is not making loan payments or lease payments then a debtor is not allowed to deduct the car-ownership deduction on the Statement of Current Monthly Income and Means Test Calculation, commonly referred to as the Means Test.

The debtor in Ransom filed for relief under Chapter 13 in 2006. The debtor listed over $80,000.00 in unsecured debt, including debt owed to FIA Card Services, who filed on objection to the debtor’s plan. The debtor sought the car-ownership deduction of $471.00 on the Means Test, which, when totaling all deductions on the Means Test, resulted in disposable income to the unsecured creditors in the amount of $210.55 per month, or $12,633.00 over the life of the debtor’s plan. FIA argued that the debtor should not be able to take the car-ownership deduction because the debtor was not making loan or lease payments. The difference between the debtor’s proposal and the amount available to the unsecured creditors would more than double if FIA’s argument succeeded. The bankruptcy court agreed with FIA and denied confirmation of the debtor’s plan.

The debtor appealed the decision to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed the lower court’s decision. The debtor appealed the Appellate Panel’s decision to the United States Court of Appeals for the Ninth Circuit, which also affirmed. The debtor ultimately appealed the decision of the circuit court to the United States Supreme Court, which upheld the previous decisions of both courts the debtor appealed.

This decision changed the landscape of bankruptcy law and greatly diminished the deductions debtors can take on the Means Test if they do not make loan or lease payments on a vehicle.