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Supreme Court Makes Means Test Harder To Pass

Posted by attorney Mohammed Badwan

Qualifying for a Chapter 7 bankruptcy became more difficult after 2005 amendments to the Bankruptcy Code created the Means Test. The Means Test gives debtors a set amount of deductions that can be subtracted from a debtor's income. The Means Test only applies to debtors who make more than the median income. The Supreme Court has made passing the Means Test more difficult after their decision in Ransom v. FIA Card Services. The issue in the case was whether a debtor who owns a car free and clear is allowed an ownership expense of $497. The Supreme Court ruled that debtors are not entitled to the expense unless they are making monthly payments on the vehicle. The rational is that debtors should not be granted an allowance for something they are not paying. This ruling will make it even harder for debtors to qualify for Chapter 7. Many people have vehicles that are owned free and clear. Without the additional $497 ownership expense, many debtors will be forced to file a Chapter 13 repayment plan.

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