| Significant Changes to the Bankruptcy Code under | | | | income" comprised of all sources of income for the |
| the Bankruptcy Abuse Prevention and Consumer | | | | household. The debtor's current monthly income is |
| Protection Act of 2005 (BAPCPA): The Presumption | | | | then offset by a set of deductions specified by the |
| of Abuse and Qualification for Chapter 7 Discharge | | | | Internal Revenue Service. In general, the allowable |
| The Bankruptcy Abuse Prevention and Consumer | | | | deductions applicable in the means test include: |
| Protection Act of 2005 (BAPCPA) represented the | | | | 1. Certain specified living expenses, |
| most sweeping change to the Bankruptcy Code since | | | | 2. Contributions to care of nondependent family |
| the modern bankruptcy code was enacted in 1978. | | | | members, |
| It was roundly criticized and opposed by the bench | | | | 3. Expenses of administering a Chapter 13 repayment |
| and bar, consumer advocates, and legal | | | | plan, |
| commentators, but a potent lobby by creditors, led | | | | 4. Educational expenses up to $1,500 annually per |
| by credit card banks were able to convince the | | | | child, |
| Congress to enact the significant amendments which | | | | 5. Home energy costs, |
| were viewed as largely business friendly changes to | | | | 6. A percentage of certain secured debt, |
| the law. | | | | 7. Expenses "reasonably necessary health insurance, |
| Perhaps the most significant change to the | | | | disability insurance, and health savings account |
| bankruptcy code under BAPCPA was the | | | | expenses," |
| "Presumption of Abuse." Under the pre-BAPCPA | | | | 8. Expenses for protection from family violence, |
| bankruptcy code, debtors could file for bankruptcy | | | | 9. A percentage of all priority debt, and |
| under Chapter 7 liquidation or total discharge, | | | | 10. Contributions to tax-exempt charities. |
| regardless of their income level. Under the BAPCPA | | | | After the debtor's income and expenses are |
| amendments, debtors had to prove that they | | | | summed, the court or trustee considers whether a |
| qualified for Chapter 7 bankruptcy. BAPCPA creates | | | | "presumption of abuse" exists. Such a presumption |
| a method to calculate a debtor's income, and | | | | exists if the debtor has at least $166.67 in current |
| compares this figure to the median income of the | | | | monthly income after the allowed deductions, the |
| debtor's state. If the debtor's household income | | | | debtor has at least $100 of such income and this sum |
| falls below the median income for the state, then the | | | | would be enough to pay general unsecured creditors |
| debtor automatically qualifies to file for Chapter 7 | | | | more than 25% over five years (i.e., they could |
| bankruptcy. | | | | successfully enter into a Chapter 13 repayment |
| If the debtor's income is above the median income | | | | plan). Absent special circumstances, if the debtor |
| amount of the debtor's state, the debtor is subject | | | | "fails" the means test, he or she cannot seek |
| to a "means test." The means test works roughly | | | | Chapter 7 liquidation or total discharge. Rather, he |
| like this: | | | | or she must petition for a repayment plan under |
| The debtor first calculates the "current monthly | | | | Chapter 13. |