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Article from by Cathy Moran, Attorney Bankruptcy Law Network

The lawyer’s website described Chapter 7 as the choice for families with low income.


The site recounted how “bankruptcy reform” tried to exclude higher-income folks from Chapter 7. That may have been the intent of the 2005 Congress but that isn’t the way the law they wrote works.

Means Test in Operation

Bankruptcy’s means test allows people with high incomes who have certain kinds of expenses to file Chapter 7.

The perverse truth is that payments on secured debt are deductible from income. Big mortgage payments, past-due property taxes, car loans, all count as reductions in income for means test purposes.

Recent unpaid taxes are deductible on the means test. Delinquent child or spousal support is deductible.

It often seems to me that the people caught by the means test are middle-class people who rent, drive paid-for cars, pays their taxes, and don’t have lots of toys bought on time. Financial moderation merits no reward on the means test.

Just because you are over the median income for families of your size in your state does not mean you can’t file Chapter 7.

In fact, over the past three years in my bankruptcy practice, the average annual income of my clients has gone up at least $50K each year. Yet these clients are able to file Chapter 7 because of the composition of their debts.

Bankruptcy “reform” did not confine Chapter 7 to those making little money.

Means Test Escape Hatch

Even stranger, people whose debts are not primarily consumer debts don’t even have to take the means test. Regardless of their income and regardless of their ongoing expenses.

So an individual who has hundreds of thousands in unpaid taxes of any age, or business debts, or even large tort liabilities may avoid jumping through the means test hoop. Those debts are not classified as consumer debts.

Congress certainly mucked up their device to sort out the people who need bankruptcy relief from those who don’t. In my experience, exceedingly few consider bankruptcy who don’t need it.

Lawyers Should Do Better

Lawyers who practice in this area need to be more precise in explaining the law. The consuming public assumes that what lawyers write and publish is the gospel.

Simple statements are punchy and appealing, but seldom accurate.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg, and the Tampa Bay area.

If you would like more information on our practice, please consult our website at or call 727-335-7151.