Inside the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made several significant changes in bankruptcy law. The legislation most directly affects American consumers by outlining a “means test” to determine eligibility for debtors who wish to file for bankruptcy. If you are considering filing for Milwaukee Chapter 13 or Chapter 7 bankruptcy, here is how the law may affect you:

The Means Test

The new means test determines whether a consumer is eligible for Chapter 7—liquidation of the debtor’s assets—or is obligated to file a Chapter 13 plan for repayment. In short, this test gauges an individual’s monthly income to determine his or her “means.” Many Americans mistakenly believe that this new law will make them ineligible to declare Chapter 7 bankruptcy, but the truth is that each case is completely unique, and only an attorney with experience in bankruptcy law can help you determine how you should file.

Specific Calculations

In order to calculate means, an applicant must list all sources of his or her current monthly income, or CMI, in the six months prior to when the case was filed. In other words, the income test ignores the debtor’s current and anticipated future income. The CMI is then compared to the median income reported for individuals living in the debtor’s state with the same number of dependents. If the six-month CMI is higher than the median income, it is presumed that filing under Chapter 7 for debt relief would be an abuse of bankruptcy law.

Possible Rebuttals

A debtor can rebut an initial presumption of abuse if he is able to reduce his CMI by subtracting certain “allowed expenses.” A debtor may also subtract “other necessary expenses” and “additional expenses” to further reduce his CMI according to his state’s standards.

Burr Law Office has been providing quality, affordable bankruptcy legal services to Wisconsin clients for nearly 20 years. Visit us online or call (877) 891-1638 to hear why our satisfied clients consistently rank us as one of the best law firms in Milwaukee.