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Do You Have Too Much Income For Chapter 7?

Categories: Chapter 7

The bankruptcy rule changes from Bankruptcy Abuse Prevention and Consumer Protection Act 0f 2005, or BAPCPA, created the Means Test formula for determining whether a consumer qualified to file bankruptcy under Chapter 7 of the Bankruptcy Code. Basically, the means testing requires that the debtor’s income must be below the median level for households, using Census Bureau and IRS standards. 

Based on your current income and expenses you have determined that you qualify to file bankruptcy under Chapter 7 and file your case in good faith. Now, enters the United States Trustee. The Trustee’s role in a Chapter 7 case, is to determine whether your estate has any assets that can be sold to pay your debts, or whether you have income to pay at least a portion of your debts, pursuant to 11 U.S.C. § 707(b)(3)(B). 

A June, 2010 decision by Bankruptcy Judge Randall L. Dunn, in In re Stubblefield (Bankr. D. Or. 2010) granted the U.S. Trustee’s motion to dismiss the debtor’s case pursuant to Section 707(b)(3) because the debtor’s ability to pay creditors through Chapter 13 is of primary importance when considering whether the Chapter 7 filing is an abuse. The Court determined that although the debtor’s income had declined, under the totality of the circumstances and using the six factors outlined in Price (In re Price, 353 F.3d 1135 (9th Cir. 2004)), the debtor’s ability to pay a substantial portion of her unsecured debts was of primary importance. 

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