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In anticipation of the new means testing requirement, the rate of
bankruptcy filings spiked over 320% nationally, as compared to the same
month a year earlier. Means testing was an extremely controversial
amendment contained in the Abuse Prevention Act, which became effective
as law in October, 2005. Many proponents claimed that the 0.66% of the
U.S. population that filed Chapter 7 each year represented a national
epidemic. Critics complained legislative hacks in Washington laid down
for financial lobbyists offering mountains of cash in the form of
campaign contributions.
Today, Chapter 7 bankruptcy filing prerequisites include a
comprehensive investigation of prior income earned, and compare income
to two new methods designed to prevent employed persons from filing
Chapter 7. The essence of Bankruptcy Filing was changed forever,
and now requires almost all wage earners enroll in federally supervised
repayment plans for at least 3 years, and in most cases, for at least 5
years.
New Formulas For Bankruptcy Filing Calculations
The new means testing calculation formula for individual bankruptcy filing
under Chapter 7 is as follows:
- Income earned must be below the median income or wage level within
the state of residency.
- Current monthly wage, multiplied by a factor of 60, must be less
than $10,001
- Current month income earned, multiplied the same factor of 60, may
not be more than 25% of the total of all undisputed, unsecured debts
(credit cards, primarily, in most cases).
General Chapter 7 laws, once qualified for Chapter 7 Bankruptcy
Filing, remain nearly the same. However, several additional
requirements include proof of filing all tax returns, attendance in
credit counseling courses, and preemption of homestead exemptions in a
number of states.
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