Presumption of Abuse in Bankruptcy
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One of the biggest misconceptions in bankruptcy is that idea that the majority of people that file are taking advantage of the system, they really can pay their debts, they just don’t want to. Under pressure from credit card companies the new bankruptcy laws were passed in 2005 creating the bankruptcy means test which compares bankruptcy filers income and expenses to averages in their area. The means test was supposed to weed out those filers that were trying to take advantage of the system, or “abuse” the use of bankruptcy.
Presumption of Abuse
When you complete the chapter 7 bankruptcy means test, the file outcome will be whether the presumption of abuse arises or not. The presumption of abuse is simply a determination of whether you have disposable income left over after taking care of your living expenses. If you have too much income then the presumption of abuse arises and the court may force you into a chapter 13 bankruptcy.
The presumption of abuse doesn’t necessarily mean you are actually trying to abuse the bankruptcy system. The presumption can be triggered even if you can only afford to pay 25% of your debts, which obviously your debtors aren’t going to be very happy with, and is of course one of the reasons you probably needed to file bankruptcy in the first place. Luckily in a ch 13 you don’t have to pay off all of your debts in the payment plan, you can be approved to pay as little as 25% and then have the rest of the debt discharged at the end of the plan.
If you are completing the bankruptcy forms on your own, planning on filing pro se bankruptcy, and find out that the presumption of abuse arises on your means test you may want to speak with a bankruptcy attorney to find out how this will affect your ch 7 filing.
