Easily the most frequent search that leads people to this blog is, “Do I make too much money to file for bankruptcy?” Bankruptcy relief is not limited to poor people.
Generally, people who ask this question, or ones like it, know enough to have figured out that there is something generally called THE MEANS TEST; and it is scary. Well, yes.
In reality, the Means Test is a lot like a tax return; and you don’t have to have paid taxes for very many years to figure out that some people who make a lot of money don’t pay a whole lot in taxes. It sucks. It’s not fair. It is real. Welcome to the Means Test.
The Means Test sucks. It isn’t fair, and it is very real. Oh, and it is a LOT like a tax return. Yes, the Means Test starts with income — so does a tax return. Then, you get into the deductions — just like a tax return. That is where you need a CPA or a good bankruptcy lawyer.
Sure, there are lots of Means Test calculators available online. There are plenty of online tax calculators too. Neither of them is a substitute for someone who has spent real time studying the rules.
So, don’t call a bankruptcy lawyer and say, I know I make too much to file for bankruptcy. Call and say, I have more debt than I can pay; and I need to talk to someone who understands the Means Test.
Most people who have read much of anything about Bankruptcy law in the last few years have heard about the much vaunted Means Test. Personally, I don’t think it is all that big a bugaboo. It does, however, eat time and documentation, require significant amounts of attorney time and expertise; and, as a general matter, drive clients up the nearest wall.
So, my favorite Means Test sleaze is to not file one. Just don’t bother. Leave the blessed thing blank. You see, 707(b)(2) only applies to debtors whose debts are primarily consumer. So, if your debts are primarily NOT consumer — no Means Test. You check the little box and go on. The problem for most people is that their mortgage balance is sufficient to tilt them over to the consumer side of things, but occasionally, that doesn’t happen.
So, every once in a while I get to file a bankruptcy and just skip the Means Test. That is my kind of fun.
The centerpiece of the 2005 Bankruptcy reform act is something called the Means Test. It is a bit of an accounting nightmare, but it really doesn’t limit access to the Bankruptcy courts very often. It just chews up time and money. The great thing about the means test is that you only have to complete the whole thing if you are over median income. Congress chose to define high income filers as those who make more than the median income for their household and family size in their home State.
That means that if 50.1% of the households of your size in your State make less than you do, you are a high income filer for purposes of the Means Test. Except, if you are high income, why are you considering Bankruptcy?
Consider this little fact that I just found in a USAToday.com news story about recent Congressional action concerning school lunches. In Oklahoma 66% of all school children qualified for free or reduced price school lunches. That is right, 2/3 of all school children in Oklahoma come from households so poor that they qualify for subsidized lunches. Kind of shifts the parameters on high income a bit.