The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") extensively modified § 707(b). Before BAPCPA, the test for "eligibility" under § 707(b) was a subjective one, i.e., the debtor was eligible unless allowing the filer a discharge in Chapter 7 was deemed to be a substantial abuse. Under the pre-amendment law whether the case was a substantial abuse was in the "eye of the beholder" and turned on a consideration of whether the filer was acting in "good faith," and the "totality of the filer's financial circumstances". BAPCPA retained the pre-amendment "subjective" tests (bad faith and totality of the circumstances tests) in the newly created § 707(b)(3), but added an objective "means test" at § 707(b)(2). The additional test was, as the act's title announces (i.e., bankruptcy abuse prevention), intended to prevent perceived (by Congress) bankruptcy abuses by Chapter 7 filers who have the ability to pay some, if not all, of their debts to creditors.

The bottom line is that under the overhauled § 707(b), there are now two alternative "hurdles" to Chapter 7 relief: the "means test;" and the "good faith" / "totality of the circumstances" test.

It is important to remember, however, that failing the "means" or the "totality of the circumstances" tests simply precludes relief under Chapter 7. An individual filer, if eligible, can still seek his or her fresh start in Chapter 13 or 11.

The application of the "means test" is primarily described at 11 U.S.C. § 707(b)(2)(A)(i)-(iv) and is implement though the completion and filing of a standardized Form (that being Form 22A (which is part of the Bankruptcy Paperwork)).

The test begins with the filer accumulating all records of pre-withholding "income," received by him and his spouse (even if only one them are filing) during the six (6) full months prior to the month the bankruptcy case is filed. (Note that the 6 month "window" may roll forward as time passes between the date a filer first meets with an attorney and the date the case is actually filed. Accordingly, a filer should be constantly updating their records (and calculation) of income.)

"Income," is defined expansively (see 11 U.S.C. § 101 (10A)), and includes all sources of funds without regard to whether such funds are wages or salary or self-employment earnings, without regard to whether it is earned or unearned, and without regard to whether it is taxable. Form 22 breaks the categories of income into: (a) gross wages, salary, tips, bonuses, overtime, commissions; (b) net income (after expenses) from operation of a business; (c) interest, dividends, royalties; (d) pension and retirement income); (e) any amounts paid by any entity other than the filer (or in a joint case the filer and the filer's spouse), on a regular basis for the household expenses of the filer or the filer's dependents; (f) unemployment compensation; and (g) income from any other source. In fact, the only income that would be excluded are social security benefits or payments to victims of war crimes or terrorism.

Income for each Form 22A category the 6 month period is averaged, all the categories added, and then the monthly average (called "current monthly income") is multiplied by 12 to get an "annualized number." Note that the current monthly income calculated under the test (based on the 6 months preceding bankruptcy) is not "current" and may have no relationship to post-bankruptcy income. For example, the numbers may be skewed, one way or the other, because of an extraordinary increase or decrease during the "historical" 6 month window for which the income is calculated.

The annualized income so calculated is then compared to the applicable median family income for the filer's state and household size. (This information is available at U.S. Trustee Web Site). For example, in Pennsylvania, for Cases Filed On and After October 1, 2008, the median income is as follows:

1 Person	2 Persons	3 Persons	4 Persons
$43,036	$51,051	$64,775	$75,867

NOTE that median income numbers are periodically adjusted so that the above may not be current. You should always consult an attorney for updated information or go to the U.S. Trustee Web site and research the current numbers yourself.

If the annualized income is less then the median family income for the filer's state and household family size there is no presumption of abuse and the filer is done with the form. [Yet again we note that this does not preclude a "subjective" abuse attack under the "good faith" and "totality of the circumstances" tests, but it at least gets the filer over the "means test."]

If the filer's annualized income exceeds the median income (i.e., he is an "above median income debtor"), and he must complete the balance of Form 22A which involves deductions to the monthly average (the so called currently monthly income) as follows:

• Marital adjustment is calculated (where a nonfiling spouse's income has been included). As indicated above, a nonfiling spouse's income is factored into the test, provided, however, it is only included to the extent it is contributed to household expenses. To put it another way, nonfiling spousal income is deemed included except to extent they and the filer can document otherwise. The easiest way to document otherwise is to be prepared to show what it is that the nonfiling spouse spends on him or herself (or on their individual debts) as opposed to what he or she spends together with the filer for joint expenses. This "marital adjustment" is incorporated into the Form at Part 17 on Form 22A.


• Miscellaneous deductions based on Internal Revenue Service ("IRS") national standards for similarly sized households for living expenses (food, clothing, personal care, household supplies), and IRS local standards for housing and utilities, mortgage/rent expense, and transportation expense.


• Other necessary expenses actually incurred for taxes, mandatory payroll expenses, life insurance, court-ordered payments, education expenses for employment or for a physically or mentally challenged child, childcare, healthcare, and telecommunication expenses.


• Additional expense deductions for amounts actually expended in several categories such as average monthly amounts actually expended for health insurance, continued contributions to the care of household or family members, disability insurance and health savings accounts, protection against family violence, home energy costs in excess of the specified IRS allowance, limited education expenses for dependent children under 18, additional food and clothing expense with documentation that such expense is reasonable and necessary, and continued charitable deductions.


• Future payments on secured claims, past due payments or cure amounts on secured claims for property that is necessary to the support of the filer or the filer's dependents, payments on priority claims such as alimony and child support, and Chapter 13 administrative expenses.

The total of all deductions is subtracted from the monthly average (the so called currently monthly income) to determine if a presumption of abuse arises. Such a presumption will arise- if the filer's monthly average reduced by the allowed deductions, and multiplied by 60 is not less than the lesser of- 25 percent of the filer's nonpriority unsecured claims in the case, or $6,575, whichever is greater; or $10,950.

The BAPCPA case law is still developing. Some of the issues coming up under the application of the means test include:

• Whether payment on a claim secured by an asset which the filer is going to surrender can be included as a deduction under the means test. The cases are split. One case, finding that the filer can still deduct the contractual payment, is In re Mundy, __ B.R. __, 2007 WL 620971 (Bankr. M.D. Pa. 2007). Mundy relied upon the statutory language (but also pointed out that while the deduction might get the filer over the "means test," the fact that the property would be surrendered might justify a dismissal under the "totality of the circumstances" test).


• Whether a filer can deduct the IRS standard expense for ownership or lease of a vehicle if he owns the vehicle outright (i.e., no further payments are due on the vehicle). The cases are roughly split, see, e.g., In re Swan listing cases, with a slight majority to allowing the deduction. See also In re Ross-Tousey, 549 F. 3d 1148 (7th Cir. 2008)(holding that above-median-income Chapter 7 debtor who has no monthly vehicle loan or lease payment may claim a vehicle ownership expense deduction when calculating his disposable income under the means test). But compare, In re Talmadge, --- B.R. ----, 2007 WL 1941807 (Bkrtcy.M.D.Pa. 2007) (holding that the ownership deduction is not permitted if the vehicle is owned outright). [Of course, regardless of whether you can take the deduction or not, if the vehicle is paid off (or will be paid off shortly after the case is filed), you are looking at likely attack on your case under the subjective good faith / totality of the circumstances prong.]

Under § 707(b)(2)(B), the presumption may only be rebutted by demonstrating special circumstances such as a serious medical condition, or a call or order to active duty in the Armed Forces (and then only if such circumstances justify additional expenses for adjustments to income for which there is no reasonable alternative).

There is developing case law in this area which suggests that special circumstances may include: income reduction because of loss of job and disability (In re Heath, --- B.R. ---, 2007 WL 1982194 (Bkrtcy.E.D.Mich. 2007)); 401(k) loan repayment (In re Lenton, 358 B.R. 651 (Bankr. E.D. Pa. 2006)); student loan repayment (In re Templeton, --- B.R. ---, 2007 WL 886010 (W.D.Okla. 2007)).

As discussed above, BAPCPA has retained the "bad faith" and "totality of the circumstances" tests that had been previously used. [Note that prior to BAPCPA there was some question of whether the "bad faith" and "totality of the circumstances" tests were alternatives or related (although the difference was perhaps more in degree). Based on the fact that § 707(b)(3) expressly identifies the tests as alternatives, there is an argument that circumstances indicating that the filer can fund a Chapter 13 plan is sufficient to justify dismissal even absent bad faith. (See, e.g., In re Henebury.)]

The "bad faith" prong involves such things as whether the filer was completely candid in filing the schedules, whether the filer engaged in "eve of bankruptcy" purchases, and other factors which bear on the filer's honesty and "good faith."

The "totality of the circumstances" prong includes an ability to pay something to creditors in a Chapter 13 plan. Accordingly, under § 707(b)(3), a filer who passes the "means test" may still be subject to a motion to dismiss if the U.S. Trustee or Court concludes that he can fund a Chapter 13 plan. Under the totality of the circumstances test:

• The court can consider whether expenses (even if actual) are truly reasonable and necessary. Contributions to pension plans, excessive insurance, excessive housing expenses (see, e.g., In re Zayas), excessive vehicle expenses, excessive food and clothing expenses are some of the things that that may be put at issue in applying the totality of the circumstances test. Compare, however, In re Johnson, --- B.R. ----, 2008 WL 5265740 (Bankr.S.D.Cal. 2008)(holding that Congress did not intend that consumers would be denied access to Chapter 7 solely because of the amount of their mortgage payment on their principal residence, and so, in determining whether an “abuse” exists based on the totality of the circumstances of debtors' financial situation, the court may not consider the reasonableness of debtors' mortgage payment).


• The Court can consider post-filing events such as increased income and the surrender of secured property. See, e.g., In re Henebury.