Bankruptcy

U.S. Trustee Demonstrates More Flexible Means Test Analysis For Recently Unemployed Chapter 7 Debtors

By Jonathan Alper

A debtor?s income for purposes of the bankruptcy means test is based on his last six months actual gross income. The six month income is doubled to arrive at an annual income number. In today?s economy many people are considering bankruptcy because of recent job loss. Sudden unemployment can produce an inequitable bankruptcy means test result. When a is suddenly unemployed the means test strictly applied will be based on previous employment without consideration for future unemployment without significant income. A person who had been making a good income will likely fail the means even though he is unemployed and unable to pay his bills. Up to now, many recently unemployed debtors had to file a Chapter 13 bankruptcy based on prior employment and then convert to a Chapter 7 when it became evident they had no income to fund a Chapter 13 plan. This round-about Chapter 7 is inefficient and more expensive for the debtor.

Recently, our office discovered that our local U.S. Trustee office is now considering a different and more direct approach to bankruptcies of recently unemployed debtors. We have been told that we can file a Chapter 7 case for a recently unemployed debtor even though the means test based on previous income states that the debtor is ineligible for Chapter 7. If the petition explains that the debtor is without work or significant income with no immediate employment prospects the Trustee?s office will not reject the Chapter 7 filing. This represents a more compassionate and common sense approach to enforcing the means test which is designed to prevent abusive Chapter 7 filings.

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

Full post as published by Florida Bankruptcy Law on September 15, 2009 (boomark / email).