Means test may not apply to cases converted to Chapter 7

Since 2005, consumers wishing to discharge their debt through a Chapter 7 bankruptcy case have had to first prove their eligibility by passing a “Means Test,” which is a set of onerous forms attached to the bankruptcy petition designed to figure out whether the debtors have above-average income for the state they lives in.

Consumers with above average incomes are often shuffled off into Chapter 13, where they must make specified monthly payments to a trustee on behalf of their creditors.

But what happens if a debtor files Chapter 13, (either originally, or in response to a failed means test), but later on elects to convert the case over to Chapter 7? Must a means test form be submitted in this case?

The recent ruling by Massachusetts bankruptcy judge Joel B. Rosenthal in the Guarin case says the answer is “NO.” Judge Rosentahal found no language within the bankruptcy code requiring a means test form for converted Chapter 7 cases.

Other judges around the nation have come to the opposite conclusion, so debtors facing this situation will want to see if there are any strong opinions on the matter issued by the judges in their local bankruptcy district.

 

By Doug Beaton

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