Bankruptcy

"Special Circumstance" Exception To Means Test Is Narrowly Construced By Florida Court

By Jonathan Alper

People who earn above median income and who fail the "means test" cannot file Chapter 7 bankruptcy. There is an exception for debtors who can demonstrate "special circumstances." I have had many clients who felt their circumstances were special so that they should be able to file Chapter 7 even in they "technically" failed the means test. The term "special circumstances" is obviously vague. Everyone seriously considering bankruptcy has financial problems and circumstances which require relief, but not all financial problems can meet the test of "special circumstances." A recent Chapter 7 court decision from the Middle District of Florida found that the "special circumstance" provision is intended to provide a narrow exception, and that the debtor has a difficult burden of showing why he can file Chapter 7 despite failure to pass the objection "means test."

The court held that the legislative history was intended to protect needy debtors from the rigid and arbitrary means test formula. However, the legislature also intended that the "special circumstances" exception is reserved only for debtors whose are in "dire need" of Chapter 7 relief.. The court found that to qualify for a means test esception the debtor must establish circumstances that are "extraordinary or exceptional, are unexpected or involuntary, and place the debtor in dire need of Chapter 7 relief." In this particular case, the debtor claimed that a marital contract prohibited her from applying the property or income of the non-filing spouse to payment of the debtor?s separate debts. The court found that marital agreements are relatively common, not exceptional, voluntary agreements between spouses. The court denied the debtor?s Chapter 7 filing. The case shows that courts will reluctantly grant exceptions to means test results which deny Chapter 7 and will narrowly construe the "special circumstance" loophole. The case is: In re: Dahlia M. Stocker, Case No. 6:07-5100.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Full post as published by Florida Bankruptcy Law on May 05, 2009 (boomark / email).