Why is there a “presumption of abuse” in Chapter 7 bankruptcy?

On Behalf of | May 13, 2020 | Firm News |

One of the most intimidating terms in personal or business finance is bankruptcy. The word alone carries a stigma

Chapter 7 bankruptcy includes a presumption of abuse. There is often a misunderstanding of what that means. It means the filer is not able to meet requirements to liquidate their debts. If they earn enough to pay their debts, there is a “presumption of abuse” of the bankruptcy system.

Those people often qualify for Chapter 13 or their cases are often dismissed. If you file Chapter 7 you need to understand the Bankruptcy Means Test. You will also have to overcome the presumption of abuse in the test.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

People who qualify for Chapter 7 can liquidate nonexempt assets and pay off as much debt as possible. The remaining debt is discharged.

Many people who could afford to pay their debts were filing for Chapter 7 and abusing the system. Congress established the “Bankruptcy Abuse Prevention Act of 2005.” That established the test to fix the problem.

Challenging Bankruptcy Means Test results

Bankruptcy can be scary and confusing. You can challenge failed test results. A lawyer can help you ensure that the court considers your family’s special circumstances and necessary expenses accurately and fairly.

That could include:

  • Divorce/separation
  • Serious medical conditions
  • Job loss/income reduction/layoff/forced retirement
  • Military duty
  • You have a burden of proof

It is important to remember; you have a burden of proof if you fail the test. An attorney can help you provide the proof you need. The bankruptcy court will make the final determination.