In order to properly file for Chapter 7 bankruptcy a debtor must first qualify for Chapter 7 as determined by the U.S. Bankruptcy Code. Additionally, in 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that requires debtors to submit their income to a means test before they can qualify for a Chapter 7 filing.
The means test determines whether or not a debtor’s income is low enough such that they qualify for a Chapter 7 bankruptcy filing. A Chapter 7 filing may discharge all that the debtor owes, and thus Congress wanted to ensure that only those who truly needed this tool were using it.
If the means test shows that a debtor makes too much money, it is presumed that the debtor is attempting to abuse the bankruptcy code by filing for Chapter 7. The debtor will then have the option of filing for a Chapter 13 bankruptcy, and thereby will be required to pay a portion of their unsecured debt.
Rebutting the Presumption of Abuse
By failing the Chapter 7 means test a debtor is presumed to be making too much money and attempting to perpetrate a fraud upon the bankruptcy court. However, a debtor’s bankruptcy attorney may be able to help the debtor “rebut” this presumption.
To legally rebut a presumption means that the attorney and debtor will prove to the bankruptcy court that the presumption is false by providing evidence of its untruth.
Under the BAPCPA, it is the debtor’s burden to establish that he or she is not attempting to perpetrate a fraud on the court by filing for Chapter 7 bankruptcy. The debtor does this by providing evidence, usually in the form of documentation, of “special circumstances.” Special circumstances establish the reason the debtor took on the debt that they have.
For example, if a debtor took out a large line of credit based on the fact that they were given overtime hours at work but are now no longer receiving those extra hours, the debtor could rebut the presumption of abuse by showing the court his or her pay stubs.
The pay stubs would establish when the overtime pay began and when it ended. The debtor can then show that he took out the new credit line at the same time that he was being paid more money at work. The overtime pay was a “special circumstance,” which explains why the debtor would take on more debt.
The BAPCPA does not specifically define “special circumstances,” but other situations that may be considered as such include sudden medical expenses, recent unemployment or a sudden rent increase.
A New York City bankruptcy attorney will be able to help you determine whether or not you pass the Chapter 7 bankruptcy means test. Further, they can file with the bankruptcy court any affidavits or other documentation to help rebut a presumption of abuse.
If you or someone you know if considering filing for Chapter 7 bankruptcy, contact us. The attorneys at The Law Offices of Stephen B. Kass have years of experience in both bankruptcy and tax law, and are here to help you today.