The Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) of 2005 created all sorts of new and confusing terms. Among them is “above median.” This refers to a debtor whose annual income, as calculated by the most recent past six months’ income multiplied by two, is above the median income for a family of the same size and located in the same county as the debtor. Above median debtors are guilty of an initial presumption that they are abusing the bankruptcy system by filing Chapter 7. It was Congress’ intent that those debtors who could afford to pay something should be made to pay something rather than just get a Chapter 7 discharge.
The first step in determining whether abuse exists is to compare income as described. If the debtor is above the median income, she must then complete the Means Test, which is a tax return-like document of several pages with instructions like “if line 10 is greater than line 9, enter the amount on line 13; if not, go to line 17.” The Means Test allows standardized deductions from monthly income according to IRS and other guidelines. If, after completing the Means Test you are able to check the box “no presumption of abuse exists” you can initially file Chapter 7.
But your journey isn’t over. In above median Chapter 7s, the United States Trustee is charged with the responsibility of examining your Means Test to make sure it’s been filled out correctly. Think of this as an IRS audit. The U.S. Trustee will request additional documents and go through everything carefully. Even if the U.S. Trustee concludes the Means Test has been completed correctly it doesn’t mean your Chapter 7 case can go through.
After the Means Test examination, the U.S. Trustee makes a second examination under the “totality of the circumstances” test. This is one where they look at everything again with a view to whether or not, under all the circumstances of your case, you do indeed have the ability to repay a certain amount of debt. The U.S. Trustee may file an objection to your discharge. If so, you have the ability to reply to that objection and have the matter determined by the bankruptcy judge.
Above median Chapter 7s are difficult. There is a strong bias in the law against above median debtors in Chapter 7. That isn’t to say that you can’t get a discharge under Chapter 7 if you’re an above median debtor. It is to say that the road may be steeper and more rugged than for a below median debtor.