A Sacramento-based Bankruptcy Attorney serving Roseville discusses the means test and changes made by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:
There is a lot of confusion surrounding the changes that were made to the Federal Bankruptcy Laws in 2005. Many people believe that they are no longer eligible to file, or are confused about which of their debts they would be able to discharge through bankruptcy. So how did the BAPCPA impact consumer’s ability to file for bankruptcy?
The implementation of the B22 worksheet, also known as the “Means Test” is the biggest change made by the BAPCPA. The act sets out a method to calculate a debtors income, and compares this amount to the median income of the debtors state for their family size, as determined by the IRS. If the debtors income is above the median income amount of the debtors state, the debtor is required to complete the B22 worksheet.
If your income is higher than the median income for your state, this does not necessarily mean that you are not eligible to file for a chapter 7 bankruptcy. The B22 allows you to deduct expenses that are necessary for you to live, as well as some of your actual expenses. A debtors “current monthly income” is reduced by a set of allowed deductions for food, shelter, and utilities as specified by the IRS . You are also able to take most of the deductions that are actually taken out of your paycheck for taxes, insurance, etc. If you are financing your home and/or car, the actual amount paid to the lender will also be deducted from your monthly income. Money owed to the IRS, for child support, and other “priority debts” is also deductable. There are other eligible deductions, including some charitable donations, expenses for grade and high school , life insurance costs, and some telecommunications costs, that are frequently used. The B22 is a very complex worksheet, which is why it is important to have an experienced Attorney analyze your case.
Even if after claiming all eligible deductions, your income is still above the state’s median income for your family size, you still may be eligible to file a Chapter 13, where you re-pay a percentage of your debts, the exact amount depending on a variety of factors including the B22. Some debtors who can qualify for a Chapter 7 actually prefer to file a Chapter 13, for various reasons including stripping off a second and even third mortgage, “cramming down” the value of a car or other secured asset, and making one payment that the Trustee distributes rather than making numerous payments each month.
There are many factors that go into filing a successful bankruptcy. The BAPCA of 2005 put certain parameters and restrictions on filing bankruptcy, but with the assistance of a qualified attorney, most debtors can still file a successful case that suits their needs.
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