Does the Means Test Violate the First Amendment?

Does the means test violate the First Amendment?

Does the Means Test Violate the First Amendment?

The bankruptcy means test, a much-maligned formula for determining chapter 7 eligibility, has been criticized on many grounds since it’s enactment as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Critics in the consumer bankruptcy bar are quick to point out inconsistencies, contradictions and inequitable results caused by the rigid means testing calculation of disposable income as a doorway to chapter 7 bankruptcy. To be sure, the means test has its critics, however is it violative of the First Amendment and the free exercise of religion?

 In Re Meyer

A married couple in Wisconsin think so, having recently argued unsuccessfully that the means test violated their First Amendment right to the free exercise of religion by restricting the amount of expenses they could deduct for religious education.

When the couple filed for bankruptcy, their combined salaries, as an architect and parochial school teacher, placed them above the median income for a family of their size in Wisconsin, which triggered application of the means test. Based on the  families’ allowed deductions for living expenses, they failed the means test and a presumption of abuse arose which required a demonstration of “special circumstances” if they were to qualify for Chapter 7 bankruptcy. However, rather than arguing that special circumstances existed, the debtors claimed the means test and 11 U.S.C. § 707(b) compelled them to choose between exercising their constitutional rights and receiving the economic benefit of a discharge under 11 U.S.C. § 727. 707(b)(2)(A)(ii)(IV), which limits the deduction on the means test for educational expenses provides:

In addition, the debtor’s monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,775 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I).

$1,775 per year per child in educational deductions comes out to a maximum $147.92 per month per child educational deduction, however, the statute does not discriminate based on religion, applying to both private and public schools. The Court’s reasoning in striking down the debtors free exercise of religion argument was far less compelling than the argument itself. In the Supreme Court decision of United States vs. Kras,  the court found that there is no fundamental right to a bankruptcy discharge. As the Supreme Court put it:

“Bankruptcy laws regulating economic activity do not involve constitutionally protected conduct and, thus, are subject to ‘a quite lenient test for constitutional sufficiency.

The court found that Congress, in enacting income restrictions on chapter 7 eligibility, had acted with a “rational basis” for the legislation and therefore the law could not be successfully challenged on constitutional grounds. Because there is not a fundamental right to a bankruptcy discharge and because the means test does not discriminate based on religion but applies universally to all education expenses, it was held not to violate the Meyer’s First Amendment Rights.

Image credit: U.S. National Archives