THINKING ABOUT FILING CHAPTER 7? MAY WANT TO FILE NOW

October 6, 2007

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Many people thinking about filing bankruptcy do some research on the internet, and find out that there is a “Means Test,” a formula for determining if a “presumption of abuse” arises, which may prevent someone from being eligible to file Chapter 7 bankruptcy.

The IRS Collection Financial Standards are dollar amounts that people are allowed per month to live on, when they owe IRS Taxes. The Means Test incorporates these standards into its formula, to determine eligibility to file Chapter 7, and also to determine a minimum amount of money that must be paid to unsecured creditors in Chapter 13..

The bad news: The IRS has just announced that it has revised its methodology for calculating the Standards. The bottom line is that they have eliminated the ability of higher income people to claim higher expenses for such things as food and clothing. So if you make more than average money, it will be much harder to pass the means test. These changes are not effective for bankruptcy filing purposes until January 1, 2008.

While we are still digesting all of the changes, it appears that if you are an “above median” income earner, and you intend to file Chapter 7 bankruptcy anyway, it may be better to file now, rather than after January 1.

Opinion: It’s just too bad that the IRS has the power to make these changes, which then substantively affect the rights of many people to file bankruptcy. There will likely be legal challenges to this change. In my opinion, if people intend to file bankruptcy, they need the best legal help they can find, and they need to plan ahead, so that this artificial mathematical “means test” doesn’t prevent them from getting the fresh start that they need.

Thinking About Filing Chapter 7? May Want To File Now