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Muttering about the means test

Jan 31, 2008
How bankruptcy works, Means test

The stupidity of the means test as a metering device in bankruptcy was apparent as I worked through the case of a single debtor. Because she is a renter with an old, paid-for car, and no unpaid taxes, the means test will compel her to pay a significant amount monthly to her Chapter 13 plan.

Whereas, if she had mortgages that were double or triple the amount of her rent, or an upscale new car, or years of unpaid taxes, those payments would be deductions from her income in calculating what she must pay in Chapter 13. Her unsecured creditors would get nothing: all the available money would be diverted to secured claims or taxing authorities.

Does it seem to anyone else that we are rewarding the wrong sort of behavior?

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One Response

  1. Bankruptcy reform costly but pointless : Bankruptcy Law Network  •  July 31, 2008 @6:56 am

    [...] Because the result at the bottom line of the form determines whether the debtor is presumed eligible to file Chapter 7 or determines how much unsecured creditors will get in Chapter 13, the exercise is terribly important, but not meaningful or sound: the means test favors the creditors of those who live modestly and pay their taxes over those who have bought cars and property on terms or failed to pay taxes or support. [...]

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