Revisiting the 2005 bankruptcy reform act

Hormiguero_IHB

Hormiguero_IHB

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Means Testing



The most controversial reform in the Bankruptcy Code lies in the creation of a ?means test? for eligibility to file under Chapter 7. The Act requires a comparison of the debtor?s income to the median income in the individual?s domiciled state. If the debtor?s income is above the median and he is able to pay at least a minimal amount per month to creditors, he is now barred from Chapter 7 filing and must be so informed by any ?debt relief agency? or legal counsel he has retained.



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http://www.nysscpa.org/cpajournal/2006/1106/essentials/p36.htm



I thought it might be time to revisit this interesting piece of the legacy of the DeLay Congress.
 
If you make 100K a year, had a teaser rate at $1700, and your home now has negative equity and has reset to over $5000 a month, you're done. No judge will not discharge this.



(edit - swapped "year" for mistake of "month")
 
There are certainly more than a few ironies in the ways that the upper-middle class shot themselves in the foot on this one.



"What's the matter with Kansas" suggested that low-income midwesterners and southerners were the biggest unwitting victims of the DeLay era - but perhaps that isn't quite true.
 
Once you loose your job then the means test does not apply. So it makes sense to only file when you have lost your job which is a lot of people in RE, lending and banking. That reform act was a big sell out by the Republicans to the credit card industry which is just crap and hurts the consumer. But it will bite them as people just are not filling BK anymore and just walking away.
 
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