Chapter 7 Bankruptcy Reform


In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (hereinafter referred to as “the Act”) became law. The Act marks the most comprehensive reform to the Bankruptcy Code in many years. Significant changes to relief under Chapter 7 were made as a result of the Act. Perhaps the most notable change is the implementation of a new “means test.”

The “means test” can be found at revised Bankruptcy Code section 707. Section 707(b) provides that if granting relief would be an abuse of Chapter 7, a debtor’s Chapter 7 case will be dismissed or, alternatively, converted to Chapter 11 or 13.

The new “means test” can be difficult to understand. In reviewing the “means test,” it is important to have a general understanding of what the test is seeking to accomplish. The test was implemented in large part to deal with the problem of persons seeking discharge of their unsecured debts, despite having the ability to pay those debts. Under the “means test,” one’s ability to pay unsecured debts is determined by looking at two main factors: 1) a debtor’s current monthly income and 2) allowable monthly expenses. Those two factors are discussed in more detail in the provisions of the Bankruptcy Code.

After a determination of current monthly income and allowable expenses is made, the “means test” analysis is conducted. A presumption of abuse exists if the debtor’s current monthly income minus allowable expenses, and multiplied by 60 is not the lesser of 1) 25 percent of the debtor’s non-priority unsecured claims, or $6,000.00, whichever is greater; or 2) $10,000.00. This presumption does not arise if a debtor’s income does not exceed the State family median income. As previously stated, if the presumption of abuse arises, the case will be dismissed or converted to Chapter 11 or 13.

One can overcome the presumption by showing special circumstances that would decrease income or increase expenses, changing the result of the “means test” analysis. If the presumption arises, the court notifies all creditors within 10 days of the filing of the petition. The new “means test” is an additional barrier to those debtors seeking to discharge unsecured debts under Chapter 7.

Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does not create any attorney-client relationship between you and the Law Offices of Kenneth U. Reyes, P.C. This article is not a solicitation.

Attorney Kenneth Ursua Reyes was President of the Philippine American Bar Association for 2005. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. Mr. Reyes is a Certified Family Law Specialist. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive former CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail; visit at

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