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Follow on Google News | Overview of Means Testing - Part IThe provisions of the Bankruptcy Code pertaining to Means Testing are found in 11 U..S.C. section 707( b) of the Bankruptcy Code pertaining to dismissal of Chapter 7 case or conversion of Chapter 7 case to either under Chapter 11 or Chapter 13.
By: Brian D. Lerner Application of Section 707(b) – Limited to Consumer Debtors The BAPCPA amendments to Section 707(b) are substantial. Section 707(b) still applies however only to individuals whose debts are “primarily consumer debts.” Consumer debt is defined in Section 101(8) as “debt incurred by an individual primarily for a personal, family, or household purpose.” Case law has made it clear that a consumer debt is any debt not incurred with a profit motive. Specifically, a home mortgage is normally a consumer debt unless the loan proceeds were used in a business. Income taxes however are not consumer debts. Substantial Abuse is Changed to Mere “Abuse” A chapter 7 case of an individual whose debts are primarily consumer debts may be dismissed by the court if allowing the case to proceed would be an “abuse of the provisions of this chapter.” The pre-BAPCPA language of “substantial” Who May File a Section 707(b) Motion Generally, any party in interest, the United States trustee, or the court sua sponte may file a motion seeking dismissal under Section 707(b). However, if the debtor’s “current family income” (i.e., the debtor’s gross monthly income) is below the median income of the debtor’s state, only the United States trustee or the court may file the motion to dismiss and that motion may not be based on means testing. [11 U.S.C. §707(b)(6)] Means Testing – Based on the Debtor’s “Current Family Income” If the debtor’s net income on a monthly basis is above a certain level, computed through the means testing rules, abuse is presumed. [11 U.S.C. §707 (b)(2)] If the debtor’s “current family income” (i.e., gross monthly income) is below the median income of the debtor’s state, means testing cannot be the basis for a motion to dismiss. [11 U.S.C. §707( b)(7)] “Abuse” may, however, still be the basis for dismissal. Median Family Income in California The determination of whether the debtor’s “current family income” is below the “median income” of the state depends on the number of individuals in the debtor’s household. If the debtor is “in a household of one,” the median family income in California is $42,012.00 [See, Census Bureau Median Family Income By Family Size(in 2004 inflation adjusted dollars). After four persons in the household, add $6,300.00 for each individual in the household to determine the annual median income. Since the debtor’s gross income for means testing purposes is the debtor’s actual income for the six months prior to the filing [11 U.S.C. §101(10A)], that six months of income would presumably be compared to one-half of the annual median family income for California residents. Potential Award of Costs, Fees, and Civil Penalties Under Section 707(b) The court may award reasonable costs, including attorney fees, and an “appropriate civil penalty” “in accordance with the procedures described in rule 9011 of the Federal Rules of Bankruptcy Procedure” in favor of the chapter 7 trustee and against the debtor’s attorney if a motion to dismiss under Section 707(b) is filed by the chapter 7 trustee and is granted. [11 U.S.C. §707(b)(4)] Similarly, the court may award sanctions to the debtor if a Section 707(b) motion, filed by a party in interest, other than the United States trustee or chapter 7 trustee, is denied. [11 U.S.C. §707(b)(5)]. # # # I have been a licensed attorney since 1992. I have passed a rigorous examination and extensive experience requirements by the State Bar of California, Board of Legal Specialization. My firm helps in preparing many different types of bankruptcy petitions. They will be prepared and filed in the Bankruptcy Court where the bankruptcy records will be stored for many years. End
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