Although the intent of the law was to make it more difficult for
individuals to file bankruptcy under Chapter 7, under which most of
their debts are discharged and to force individuals to file under
Chapter 13 under which part of all of the debts are repaid under a
plan, it has, in practice, not substantially made a large effect.
Approximately 85% of debtors are not subject to its "means test" and a
large percentage of the rest are able to "pass" the means test.
The
means test applies to filers whose gross income (based on the six month
period prior to filing), is above the median income in their state.
Individuals whose incomes are below the median automatically qualify
for Chapter 7. Filers whose incomes are above the median must then
calculate their Disposable Monthly Income (DMI) to determine whether
they are able to make payments on their debts sufficient to qualify
them for Chapter 13. The DMI is determined by subtracting priority debt
payments, secured debt payments, Internal Revenue Service determined
expense allowances, taxes and certain other expenses from a filer’s
monthly income. If the DMI is less than $100 per month, they are
permitted to file under Chapter 7. If the DMI is above $100, they must
file under Chapter 13.
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