If I Pass the Means Test, Can I still be barred from filing bankruptcy?

 

A judge can still bar you from filing Chapter 7 bankruptcy if the "totality of the circumstances" under707(b)(3) make it appear you are "abusing" the process.

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If I Pass the Means Test, Can I still be barred from filing bankruptcy?

Yes, you can still be barred from filing Chapter 7 bankruptcy.

Passing the means test removes one barrier: it means that you are not "presumed" to be "abusing" the bankruptcy system under 707(b)(2).It is an essential first step, and for most people, that is that. They are clear to file.

However, in some cases, a bankruptcy judge may rule that case should be dismissed because to the "totality of the circumstances" under707(b)(3).

Example 1: In Iowa, a judge ruled that a debtor was abusing the system because in the year preceding his bankruptcy, he received substantial sums of money from various sources and spent it all on unnecessary indulgences, rather than pay down his debt. In re James, 345 B.R. 664 (Bkrtcy.N.D.Iowa 2006).

And, while the means test income analysis looks backward, a court can use 707(b)(3) to look forward.

Example 2: In another example, a Northern California court denied a debtor the right to file Chapter 7 because the debtor was about to have a substantial increase in income. In re Pak, 343 B.R. 239 (Bkrtcy.N.D.Cal. 2006).

 


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Jurisdictional relevance: US

Legal Consumer - Hillsboro, ILLaw. The content of this article pertains to all US states and counties.