As part of a Chapter 7 bankruptcy filing, individual debtors with primarily consumer debts must disclose financial information using a "means test" that evaluates their potential ability to pay creditors a certain minimum amount over a 5-year period. See Official Form B 22a -"Statement of Current Monthly Income and Means Test Calculation."

If the debtor's income under the means test exceeds a threshold amount, a presumption arises that the debtor's filing is an "abuse" of Chapter 7. A debtor can rebut the presumption by demonstrating "special circumstances" that justify additional expenses or income adjustments to the means test results, subject to the bad faith/totality of the circumstances test. A bankruptcy attorney's expertise in this area is highly valued because it can be the difference in whether you qualify or not.

This test is required only to individual debtors that have primarily consumer debts. This means that corporations are not subject to this test, and individual debtors are not subject if more than 50% of secured and unsecured claims are not debts incurred primarily for a personal, family or household purpose.

Note that secured debts incurred to purchase or improve a personal residence are considered consumer debts. Whereas, debts incurred for a business venture, or debts owed for taxes would not be considered consumer debts.

A Chapter 7 debtor passes the means test if the annualized current monthly income of the household is equal to or less than the state's highest median family income for a family of the same size. If it is higher, the debtor must perform several additional means test calculations.

If the debtor fails the means test and does not rebut the presumption of abuse, the court may either dismiss the case, or with the debtor's consent, convert it to a case under Chapter 11 or Chapter 13.

The Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") was enacted in 2005 to reduce consumer bankruptcy filings. BAPCPA may force Chapter 7 consumer debtors who could make some minimal repayment to creditors from present and future income to either convert to a voluntary Chapter 13 or face dismissal of their case for abuse.

If you are forced to convert to Chapter 13, you may receive a discharge if you file and obtain confirmation of a Chapter 13 plan. Plan payments commence prior to confirmation, and once confirmed, the plan redefines the terms pursuant to which the debtor will pay off debts. Creditor consent to plan is not required. The Plan plan must be filed within 14 days after the case is commenced unless a court order extending time is obtained for cause.

Vokshori Law Group provides Bankruptcy assistance to individuals and businesses serving the entire Los Angeles County.