Can I File Bankruptcy on Credit Cards if I'm Not Behind in Payment?
Full Question:
Answer:
Your ability to repay debt will be a factor in your eligibility for Chapter 7. The federal bankruptcy reform of 2005 created a means test, to prevent use of Chapter 7 by individuals who were considered capable of repaying at least a portion of their debts through a Chapter 13 plan. For such people, the use of Chapter 7 is considered an “abuse” of the bankruptcy code. Means test refers to a test applied under Section 707(b) (2) of the Bankruptcy Code (11 USCS § 707(b)(2)) to determine whether an individual debtor's chapter 7 filing can be presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case. The means test permits dismissal of the case if the debtor's income exceeds the state median income (regardless of the amount of debt) or on general grounds, including bad faith on the part of the debtor. It is also used to determine whether a debtor is eligible for Chapter 7 (liquidation) or must file under Chapter 13 (wage-earner repayment plan). The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. The means test was added to the Bankruptcy laws by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
If the individual debtor's "current monthly income" is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the Chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $10,000, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,000. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's consent) or will be dismissed. 11 U.S.C. § 707(b)(1).