Mr. Ginsberg – I am a regular reader of your bankruptcy blog, and appreciate your time and efforts. A recent post on another bankruptcy blog raised an interesting issue on which I am wondering if there is a consensus of legal opinion.
Essentially, the question is whether the revision of 707(b) under the BAPCPA effectively precludes a “double jeopardy” type situation in which a Chapter 7 debtor could be exempt from the “means test” but subsequently face a challenge on the basis of excess disposable income. In the interest of brevity, I’ve copied the posting below:
Attorney Kevin Chern writes…
707(b)(2) May Help Debtors Under the Median Income
Tuesday, September 06, 2005
Under the old bankruptcy law, the trustee could bring a 707(b) motion alleging abuse based on a debtor’s ability to repay debt with expendable income. Under BARF 707(b)(2), the judge, trustee or creditor can all bring a 707(b) motion to dismiss if the debtor’s household has more than the median income for a household of that size. Logic dictates that, under the same provision, neither a creditor, nor the judge, nor the trustee has a right to bring a motion to dismiss no matter how much expendable income the debtor has so long as the debtor’s household has less than the median income for a household of that size.
So, in some situations under BARF, this bright line median income test will help debtors escape 707(b) objections. Of course, the judge or trustee can still bring a motion based on 707(b)(3) alleging that the case was not filed in good faith, but, certainly, no presumption of abuse exists.
What are your thoughts on the issue? Any feedback you could provide would be appreciated.
–Chuck
Jonathan Ginsberg responds: Chuck, I would respectfully disagree with Kevin’s analysis. The median income/means test is a qualification test. It is based on a 6 month look back, not on reality. The Schedule I and J budget that you file with your actual Chapter 7 case reflects actual numbers as of the date of filing.
For example, a debtor physician may satisfy the median income/means test because he was unemployed July-December. If he gets a new job in January earning $200,000 a year, his Form B22 would show zero earnings and he would not trigger the presumption. However, his schedule I & J would likely show significant disposable income. I am not aware of any cases that support Kevin’s logic. Further, whether a case is successfully challenged as an abuse vs. one challenged under the good faith provision ends up at the same place – a dismissed case.
It would be interesting to see if any Court has considered the double jeopardy argument.
[tags] 707(b), substantial abuse, good faith, Chapter 7, dismissal of Chapter 7, Kevin Churn, means test, median income test [/tags]