One of the biggest wrinkles — perhaps THE biggest — in the Bankruptcy Code changed that were passed in 2005 was the introduction of a “means test” to see if debtors qualify for eliminating their debts in a case filed Chapter 7 of the code.
A simplified explanation of the way the test works is that if your income, measured over the past 6 months, is above average for your family size in the state you live in, you “fail” the “test,” and Chapter 7 is probably not an option for you. Many of these debtors end up filing Chapter 13 cases, where they have to make monthly payments that at least partially pay off their creditors.
But the test itself is often not the real evil. Instead, it is montrous nine page goverment form that you have to fill out to even see if you pass or fail.
(Granted, if you hire an attorney, he will fill the form out for you, but you still have to provide him with the information to do so).
So is there any way to get out of filling out this mean, mean form? It turns out there are several, but they may not apply to many debtors.
The most likely way out is if you have a preponderance of business debts, instead of plain ole’ consumer debts. Business debtors just skip over the means test and can go right to Chapter 7. One thing to consider, though, is that even bills you are current on, like a home mortgage, count as debts, so it is possible that a large mortgage that outweighs your business debt means you have to file after all.
The next way out is for disabled veterans. If you went into debt while on active duty, or while working on homeland defense, you are excused. You should always tell your attorney if you are a disabled vet.
Armed forces reservists and national guard members can be excused form means testing as well, but only for a limited time. If you are called to active duty for at least 90 days, you are excused for the length of that duty and for an additional 540 days after the tour of duty ends.
Finally, you can just file for Chapter 13 and avoid the means test. Problem is, you have to fill out a nearly identical form that is just as long and that asks the same things — so this isn’t really much of a break!
By Doug Beaton