The Means Test: Navigating Virginia Bankruptcy Cases
In times of financial distress, exploring bankruptcy as a potential solution is not uncommon. For individuals facing overwhelming debt, Chapter 7 bankruptcy offers a fresh start by discharging most unsecured debts. However, to qualify for Chapter 7 bankruptcy, debtors must pass the Means Test—a mandatory assessment of their income and expenses.
Understanding the Basics of the Means Test
The Means Test is a tool implemented by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) to determine a debtor’s eligibility for Chapter 7 bankruptcy. The test aims to ensure individuals with sufficient means to repay their debts are directed towards Chapter 13 bankruptcy, where a repayment plan is established.
Essentially, the Means Test examines a debtor’s income and compares it to the median income within their state. In Virginia, median income levels are adjusted annually based on household size. Debtors with income below the median automatically pass the Means Test and are eligible to file for Chapter 7 bankruptcy. However, individuals with income exceeding the median must proceed to the next step of the Means Test to determine eligibility.
The Second Step: Deducting Allowable Expenses
If a debtor’s income surpasses the median, they must deduct certain allowable expenses from their income to determine disposable income—the funds potentially available to repay creditors. These allowable expenses cover a range of living costs, such as housing, transportation, healthcare, and education.
It is important to understand that allowable expenses are predefined and vary depending on geographic location. While the Internal Revenue Service (IRS) standards apply to certain expenses (e.g., housing), others are determined by local data or standardized figures. In Virginia, debtors may utilize specified state and local standards alongside national and regional standards when deducting expenses.
Once the allowable expenses are deducted, the remaining income represents the debtor’s disposable income. If this amount falls below a certain threshold—a figure calculated by multiplying the number of years remaining in the repayment period by $8,175—then the debtor generally qualifies for Chapter 7 bankruptcy. However, if the disposable income exceeds this threshold, the debtor is presumed to have sufficient means to repay their creditors and may be directed towards Chapter 13 bankruptcy.
Challenging the Presumption of Abuse
While the Means Test acts as a presumption of abuse, a debtor can still overcome this presumption and pursue Chapter 7 bankruptcy. It is crucial to consult an experienced bankruptcy attorney to explore potential options in challenging this presumption.
A debtor may demonstrate special circumstances that justify higher expenses or fluctuating income. For example, if a debtor has significant medical expenses not covered by insurance, this could warrant additional deductions and potentially help them pass the Means Test.
Moreover, individuals whose debts consist primarily of nonconsumptive business or tax-related debts may also find relief. The Means Test is primarily designed to assess consumer debtors and may not accurately reflect the financial reality of nonconsumer debtors. In such cases, it is crucial to consult an attorney well-versed in bankruptcy laws to ensure the means test accurately reflects the debtor’s circumstances.
The Importance of Professional Guidance
Navigating the Means Test can be complex and daunting, with various applicable laws and regulations at play. To maximize your chances of success and ensure your bankruptcy filing proceeds smoothly, seek professional guidance and representation. An experienced bankruptcy attorney will analyze your specific situation, help you complete the Means Test accurately, and explore any viable options for overcoming potential barriers.
Remember, this article serves as an informative guide and does not constitute legal advice. Laws and regulations can evolve and may vary depending on individual circumstances. To obtain the most accurate and up-to-date information, it is crucial to consult with an experienced bankruptcy professional.
