A new study has concluded that 85% of debtors who file for bankruptcy under Chapter 7 would still be eligible for Chapter 7 when the new bankruptcy laws go into effect this fall. The data also show that 73% of current Chapter 13 debtors’ incomes were below the state median and would therefore not be subject to the new “means test” which becomes effective October 17th. The new law provides that debtors whose income is above the state median for their household size must submit to a “means test.” The “means test” will be used to determine whether they are able to repay some debt after certain allowable living expenses are deducted from their income. Specifically:
1. If the debtor can pay $6,000-$10,000 over five years, and that amount would result in a minimum of 25% repayment of his unsecured debt, he fails the means test.
2. If he can pay at least $10,000 over 5 years, then regardless of the percentage that unsecured creditors would receive in the repayment plan, he fails.
Those who fail the means test will be able to file under Chapter 13 and submit a repayment plan to the court, but will not be eligible for Chapter 7, which discharges most unsecured, nonpriority debt.
IL-based Best Case Solutions, a provider of bankruptcy preparation software for attorneys, says its study analyzed 11,000 actual bankruptcies recently filed in 45 states. Nearly 86% of the Chapter 7 filers in the sample had incomes below the state median. Approximately 40% of bankruptcies in the USA are filed using Best Case bankruptcy form preparation software for attorneys.